ANNUAL AND SUSTAINABILITY REPORT 2020 A leading industrial ecosystem driven by the force of the forest Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Contents
Introduction Sustainability facts 2 This is SCA 136 Value creation 4 The year at a glance 137 Strategic priorities and Group targets 6 CEO's message 141 Governance and materiality 8 Value chain 144 Values 10 A global and local company 147 Profitable growth 12 Forest and climate 148 Fossil-free world 14 Biodiversity 151 Valuable forests
16 Trends 153 Efficient use of resources 2020 REPORT SUSTAINABILITY AND ANNUAL SCA 156 Responsibility for people and the community Strategy and operations 159 Social data 18 Strategy 160 Environmental data 24 Forest 162 About the Sustainability Report 30 Wood 36 Pulp Other 40 Containerboard 163 Signatures 44 Renewable energy 164 Auditor’s report 46 Logistics 167 Limited Assurance Report on the 48 Sustainable development Sustainability Report 50 Fossil-free world 168 GRI Index 52 Valuable forests 170 Financial multi-year summary 54 Efficient use of resources 171 Non-financial multi-year summary 56 Responsibility for people and the 172 Definitions and glossary community 173 About the Annual General Meeting 58 The share and shareholders 174 SCA’s performance
Board of Directors’ Report The scope of the Sustainability Report in accordance 60 Board of Directors’ Report with the Swedish Annual Accounts Act is described 65 Sustainability reporting in accordance on page 65. The Sustainability Report according to with the Annual Accounts Act GRI is summarized in the GRI content index on pages 66 Risks and risk management 168–169. The Sustainability facts section starts on 71 Corporate governance page 135, and describes SCA’s sustainability work in 78 Presentation of the Board of Directors more detail. and Auditors 80 Presentation of the Executive Management Team
Financial statements and notes 82 Contents 84 Consolidated statements and notes 126 Parent Company statements and notes
1 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
This is SCA Europe’s largest private forest owner
SCA is Europe’s largest private forest owner with 2.6 million hectares of forest in Northern Sweden and more than 40,000 hectares in Estonia and Latvia. Based on this unique resource, SCA has developed an industry that generates the maximum possible value in the forest and from the forest.
2.6 million hectares of forest land
Pulp mill
Sawmills
Kraftliner mills
SCA’s forest holdings SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Estonia
Latvia
2 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
This is SCA This is SCA
The forest is at the core of SCA’s operations. SCA has built an integrated and well-invested industry around this renewable resource, utilizing and maximizing the value of the entire tree. Utilizing this raw material, SCA develops products for customers all around the world.
WOOD PULP SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
FOREST
RENEWABLE CONTAINER- ENERGY BOARD
LOGISTICS
Forest Wood Pulp The forest is at the core of SCA’s opera- 65% of the revenue for forest owners Any wood unsuitable for use in solid-wood tions. On this base, SCA has built an comes from sawmills. A competitive saw- products is used to make pulp. A pulp mill industrial ecosystem that maximizes mill industry is the economic engine of a also produces secondary flows in the form value creation in and from the forest. forest business. of green chemicals, green electricity, heating and raw materials for biofuels.
Containerboard Renewable energy Logistics SCA produces containerboard – paper From the raw materials and by-products Logistics is a core operation for a forestry for transport packaging. In our inte- that are not used for solid-wood products, company. Raw materials must be efficiently grated paper mills we also produce paper or pulp, SCA produces energy, shipped to industrial facilities and products valuable by-products and green energy. green electricity, biofuels and green delivered to customers worldwide. chemicals. SCA’s forests offer favorable sites for wind power production.
Forest, Wood, Pulp and Containerboard are segments with full reporting. Renewable energy and Logistics are reported as a part of relevant segments.
3 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
The year at a glance
The year at a glance
In 2020, SCA took significant steps towards a business structure, which will create even greater value over time.
Net sales 18,410 SEKm
EBITDA1) EBITDA margin1) 4,440 24% SEKm
Earnings per share1) Proposed dividend per share 3.19 2.00 SEK SEK SCA ANNUAL AND SUSTAINABILITY REPORT 2020
1) Excluding the effect of one-off items related to the discontinuation of publication paper operations. The reported result can be found in the Consolidated financial statements and notes on page 82.
Net sales, SCA’s climate benefit SCA’s total shareholder return SCA’s total shareholder return share of Group 2020 2020 since 2017
Total 18,410 9.6 51% 138% SEKm million tonnes total shareholder total shareholder CO2 return return
Forest SEK 6,486m, 26%2) In 2020, SCA’s climate benefit SCA’s total shareholder SCA creates value through long- was 9.6 million tonnes of CO , return (TSR) amounted to 51% term, sustainable and profitable Wood SEK 6,296m, 25%2) 2 which corresponds to emissions in 2020. growth. SCA’s total shareholder Pulp SEK 4,431m, 18%2) from Sweden’s passenger cars. return (TSR) from June 2017 Paper SEK 7,916m, 31%2) until 2020 was 138%.
2) Share of net sales before elimination of intra-Group sales 4 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
The year at a glance
Key figures Key events
SEKm 2020 2019 In 2020, SCA took important steps to transition the company Net sales 18,410 19,591 towards operations and products with good prospects for EBITDA1) 4,440 5,319 growth and long-term profitability: EBITDA margin, %1) 24.1 27.2 Operating profit1) 2,839 3,703 Discontinuing of publication paper Operating margin, %1) 15.4 18.9 In September, SCA decided to discontinue its publication paper 1) Profit for the period 2,239 2,847 operations. 800 employees were affected by the decision, primarily at the Ortviken paper mill. Earnings per share, SEK1) 3.19 4.05 Proposed dividend per share, SEK 2.00 0.00 Investments in pulp Operating cash flow 2,688 2,922 Strategic capital expenditures 1,414 1,256 SCA is investing SEK 1.45bn in the production of 300,000 tonnes of chemi-thermomechanical pulp (CTMP) at the Ortviken Capital employed 79,834 77,107 industrial site in Sundsvall. Industrial return on capital employed, % 1) 5.4 11.9 Net debt/EBITDA1) 1.7x 1.6x Investments in containerboard 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Average number of employees 4,196 4,253 At the Obbola paper mill near Umeå, the investment to increase Accidents, LTA per million hours worked 5.6 7.4 the production of containerboard, paper for transport packaging,
Climate benefit, million tonnes of CO2 9.6 10.5 is ongoing. SCA is investing SEK 7.5bn to increase the produc- Total shareholder return (TSR), % 51 41 tion of kraftliner from 450,000 to 725,000 tonnes per year. 1) Excluding the effect of one-off items related to the discontinuation of publi- cation paper operations in 2020 and the effect of changed accounting method for the valuation of forest assets in 2019.
The investment is ongoing at the Obbola paper mill to increase the production of kraftliner.
5 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
CEO’s message
We are building SCA for the future
The year 2020 was exceptional in many ways. The coronavirus They also contribute to a more sustainable society and ensure pandemic has affected all of us. Health and safety is a top that we can become even better at utilizing our forest raw mate- priority in SCA and we were quick to introduce restrictions and rials from Northern Sweden. Our investments aim to strengthen measures to avoid the spread of the virus at our workplaces, our integrated value chain and create higher long-term value in protecting risk groups and safeguarding our operations. So far and from our forests. This benefits both SCA, as Europe’s largest we have been very successful. Absenteeism at SCA was lower private forest owner, and other forest owners in the region. than normal during the year. Production and customer deliveries have been maintained in the best possible way and we Leading total shareholder return performed three major maintenance stops without increasing infection levels at our workplaces or in local communities. We are building an SCA that is better prepared to face the future, with the aim that an investment in the company will yield favor- Due to the uncertainty surrounding the impact of the coronavirus able returns over time. Since 2017, SCA has generated a total on the global economy and on SCA’s operations, SCA decided shareholder return exceeding 100%. not to pay any dividend for 2019. Our ambition, however, is to pay shareholders a stable and increasing dividend and this ambition Alongside the goal of delivering leading total shareholder return stands firm. to owners, we adopted a number of long-term Group targets during the year that will guide us in our strategic priorities. These Focus on profitable growth targets include a 50% increase in climate benefits from our busi- ness by 2030, climate benefits that are already equivalent to the In 2020, we decided to discontinue the publication paper seg- emissions from Sweden’s passenger cars. ment, a segment where SCA has been active for more than 60 years. The reason for this was the increased digitalization in A growing forest resource society. Over time, publication paper has been replaced as a medium by digital alternatives such as tablets and smartphones, The forest is at the very core of SCA and is our unique asset. and we have witnessed a reduction in the publication paper This renewable resource is used to build our business and value
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 market by more than 5% per year over the past 15 years. Demand – and our forests are growing. fell dramatically with the outbreak of the pandemic and 30% of the market disappeared overnight. Our assessment is that struc In 2020, we continued to acquire forest in the Baltic states. We turally, demand will continue to fall also after the pandemic. have now completed almost half of the program with the aim for SCA to own 100,000 hectares of forest land in the Baltic states We have a well-invested and competitive industry that leverages by 2024. This will give us a solid foundation to develop our busi- our forest resources. All of our focus, and our resources, is now ness in the region, both in terms of managing our strongly on growth products with favorable future prospects. The growing forest resources and purchasing timber from other Östrand pulp mill, which has doubled its capacity and was taken forest owners. into use in 2018, has stabilized its production at a high level during the year. We are investing in a new dry sorting line and We manage our forests with the greatest care to enable them to in world-leading technology for digital sorting at our sawmill in grow as effectively as possible. Our forest survey in 2019 found Bollsta. The ongoing project to build a new paper machine in greater standing volume and faster growth than previously Obbola to manufacture high-quality packaging paper – Kraftliner calculated. In 2020, we created a new harvesting calculation – is progressing according to schedule and budget, despite the based on the new data about our forests. current pandemic. A harvesting calculation is a simulation of the forest’s development During the year, we also made the decision to invest in a new line over more than a century assuming several conditions, including at the Ortviken industrial site to produce 300,000 tonnes of consideration for nature conservation, a reasonably uniform har- chemi-thermomechanical pulp (CTMP) primarily for use in the vesting and a stable or growing standing volume over time. The hygiene and packaging industries. This investment will further harvesting calculation indicated that we can gradually increase strengthen our position in the Pulp segment. harvesting by 25% already during the next five-year period, corresponding to just over one million cubic meters. A sustained Our investment projects in expanding product categories and high level of commitment to active forest management will mean markets are creating the conditions to boost profitability for SCA. we can further increase harvesting in our forests going forward.
6 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
CEO’s message
“Our focus is now entirely on growing product areas.” SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
We support the UN Global Compact and its principles.
Sustainable forestry conditions that these species need and established a working approach whereby we systematically ensure access to the habi- Increased growth and harvesting will not only lead to higher tats required by these species. This is done by identifying areas revenue and higher forest valuation. It will also mean more CO2 of the forest that we set aside from operations and by creating is bound in our growing forests and that more renewable raw habitats that are becoming less common in our forests. material can become products to substitute those with a bigger carbon footprint. By managing and using a growing forest Finally, we must also protect the forest’s other values, not least resource, we maintain coal and oil in the ground and effectively as a wonderful place for recreation and nature experiences. counteract negative climate change. Valuable forests, in all respects, is one of the overarching Group Since we first conducted a survey of our forests at the end of the targets adopted by SCA in 2020. These long term Group targets 1940s, standing volume has increased by 50% and growth by reflect the expectations of stakeholders and society and guide more than 100%. In addition, we now harvest more than double us to where we want to be in 2030. the amount of forest each year compared to the 1950s. Correctly managed, the forest is an unlimited and completely renewable Welcome to SCA’s forests! resource.
However, the use of wood from our forests must not damage its Ulf Larsson other values. Preserving the biodiversity of the forest is a top President and CEO priority.
This year, we undertook comprehensive development projects to give our biodiversity conservation efforts greater precision. We identified the flora and fauna in our forests that are adversely impacted by forest operations when general nature conservation measures are applied. We analyzed the habitats and other
7 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Value chain
Electricity
Wind turbines We use
the entire tree Heat Bioenergy SCA has built an industrial ecosystem Logging residue that maximizes value creation in the forest and & wood fuel from the forest through renewable products
and a resource-efficient value chain. Pellets
Liquid biofuels
Tall oil, Sawmills Bioenergy black liquor & bark The most valuable part of the tree is processed in the sawmills Energy used by SCA’s plants comes almost exclusively from into solid-wood products. Some of these become window com- bioenergy. By-products from the production process are used Pulp & paper mills ponents, painted cladding or shelves. More than half of the log is to produce heat and electricity. SCA also produces energy for used for wood products. The remainder becomes woodchips for external customers – green electricity, district heating, unrefined Pulp pulp production or sawdust that is processed into pellets. The and refined biofuels. E n e bark is used in energy production. r g y Pulpwood SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Pulp and paper mills Paper SCA’s fiber based industry produces pulp and paper. The pulp and paper mills are supplied with wood from the forests that Wind power cannot be used for solid-wood products, and with woodchips SCA’s 2.6 million hectares of forest contain a large number of from the sawmills. In addition to pulp, a kraft pulp mill also locations with favorable wind conditions. SCA develops wind produces large amounts of renewable energy. The bark is used power projects and leases land to the power producers and for energy production, heat is recycled and steam is used to investors in green energy that generate and sell green electricity. produce electricity. By-products, such as tall oil and turpentine, Wood-chips are further refined into biofuels and green chemicals. Bark & sawdust Sawmills
E Solid-wood n e r products g y
Sawlogs
8 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Value chain
Electricity
Wind turbines
Heat
Bioenergy
Logging residue & wood fuel
Pellets SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Liquid biofuels
Tall oil, black liquor & bark
Pulp & paper mills
Pulp E n e r g y Pulpwood
Paper
Wood-chips Bark & sawdust Sawmills
E Solid-wood n e r products g y
Sawlogs
9 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
A global and local company
SCA in the world and local communities
Products demanded by customers across the globe are manufactured from the raw material found in the forests of Northern Sweden. However, the aim is not to sell to as many countries as possible. Instead, SCA seeks out the markets and customers where the company’s products can generate the greatest value and where SCA can gain a significant and strategic position. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Net sales by geography in 2020
Sweden 14% UK 19% Germany 12% France 5% Rest of Europe 27% Asia 10% Rest of world 13%
10 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
A global and local company
SCA in the world and local communities
Disbursem en t s in No rt he rn S w e d e n : 5 8 %
Transportation SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Contractors
Goods/services
Public service
Vibrant local communities SCA is an important source of economic activity and welfare in Northern Sweden. In addition to creating jobs for employees and contractors, SCA purchases timber from private forest owners and products and services from a range of local suppliers.
Disbursements in 2020
Suppliers in Northern 45% Sweden Salaries to employees 13% in Northern Sweden, including taxes and social security costs Suppliers, taxes and 31% other fees in Sweden but excluding Northern Sweden Suppliers, tax and fees 11% in Sweden outside of Northern Sweden
11 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Forest and climate SCA’s contribution to a fossil-free society 1
Binds, net Growing forests capture and bind CO2 – active forest management increases 4.4 growth, for example through improved Mt CO 2 seedlings, active silviculture, contorta pine and fertilization.
Fertilization
Contorta pine SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Active silviculture
Improved seedlings
12 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Forest and climate
2
Replaces Higher growth enables more 6.1 substitution – renewable alternatives replace fossil-based products and allow Mt CO2 us to maintain carbon in the ground.
SCA’s renewable Non-renewable products products
Bioenergy Fossil 2020 REPORT SUSTAINABILITY AND ANNUAL SCA fuels
Operations Paper Plastic
3
Investments and Solid-wood products Concrete innovations reduce carbon emissions and increase profitability.
Low emissions 0.9 In 2020, SCA’s climate benefit was Mt CO2 9.6 million tonnes of CO2, which corresponds to emissions from Sweden’s passenger cars.
For more information, refer to Sustainability facts on pages 148–149.
13 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Biodiversity
How SCA protects forest biodiversity
SCA’s forest operations seek to reconcile a high level of production of valuable timber with other important forest values, particularly biodiversity. Among the great diversity of flora and fauna, SCA has identified 203 species on the Swedish Red List in its forests that are adversely impacted by forest operations applying general nature conservation measures. SCA takes particular responsibility to protect these species, predominately fungi, mosses and lichen, as well as insects. We refer to this as SCA’s species commitment.
Flora and fauna in Sweden Total: 50,000
Spe cies SCA ANNUAL AND SUSTAINABILITY REPORT 2020 in N o r th e r n
S Northern Sweden, Red List ~1,000 w e species found in the forest d
e
n
: SCA’s species commitment; 203
1
7 species which are found in SCA’s
,
0 0 forests, are red-listed and 0 adversely impacted by forest operations
Red-listed Red List Endangered In Sweden, the Red List is maintained by the Swedish Species Information Centre at the Swedish University of Agricultural Sciences. LC DD NT VU EN CR EW Using reports about discoveries of flora and fauna, the List notes declining species. Species on the Red List are divided into Least Data Near Vulner- Endan- Critically Extinct categories based on how rare and vulnerable concern deficient threatened able gered endan- in the they are. The most recent Red List was gered wild published in 2020.
14 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Biodiversity
Securing access to habitats for vulnerable species
Vulnerable species need habitats that are becoming less common in an actively managed forest landscape. SCA has identified 12 specific habitats that, based on stand age, tree continuity, availability of dead wood, presence of deciduous trees, fire sites and other factors are characterizing natural ecosystems in the region. These habitats, which are particu- larly important for the 203 species included in our species commitment, are preserved and enhanced on SCA land.
SCA has created programs and targets to ensure access to all of the habitats that are critical to these 203 species. SCA will report the progress of these programs and whether the established targets are achieved. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Examples from SCA’s species commitment: Horned powderpost beetle (Stephanopachys linearis)
Habitat: This insect lays eggs in the fire damaged bark on older pine trees following a forest fire. The larvae feed on the layer between living and dead tissue. The species requires forest fires that damage older standing pine trees.
Coral tooth fungus (Hericium coralloides)
Habitat: Grows on old, fallen, heavily decom- posed deciduous trees. The species requires a mainly deciduous stand that is left to become very old. Over time, such stands will slowly but surely turn into spruce forests. New deciduous Old man’s beard stands must be actively created to form such (Usnea longissima) habitats in a century from now. Habitat: Requires old coniferous natural forests with a continuity of trees that is undisturbed by fire.
15 Trends
A green re-start SCA ANNUAL AND SUSTAINABILITY REPORT 2020
16 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Trends
The global recession caused by the coronavirus pandemic has lead to substantial resources being invested in reinvigorating global economies. In many areas, not least in the European Union, the ambition is that this fresh start will be built on sustainable development. This makes renewable forest resources a key asset.
Trends SCA acts
Substantial resources being invested in recovery SCA delivers key input goods to manage the effects of the from the coronavirus pandemic coronavirus pandemic, including the pulp used in hygiene
The coronavirus pandemic has taken a very heavy toll on products. 2020 REPORT SUSTAINABILITY AND ANNUAL SCA global economies. Some businesses and products were hit harder than others. Countries worldwide are now investing SCA is leaving product areas where demand is shrinking, substantial resources to help those hit hardest by the such as publication paper, and instead investing to coronavirus pandemic to restart both production and the increase the production of products where demand is labor market after periods of lock-down and other effects. increasing, such as pulp and packaging paper.
E-commerce SCA supplies packaging paper to an expanding E-commerce, which was already growing rapidly, was e-commerce sector. further strengthened by the coronavirus pandemic.
Climate change SCA’s growing forests bind ever more CO2 and SCA’s The world’s glaciers are melting at an accelerating rate. The products can substitute others that are made from fossil average temperature of the air and oceans is rising. Dramatic materials. Coal and oil can therefore remain locked under- weather events are becoming more common. There is ground. increasing evidence that the climate is becoming warmer and that this is caused by rising greenhouse gas emissions.
Fresh start with a focus on sustainable SCA’s entire business is built on resource-efficient use of development a renewable and growing asset, the forest. Many countries are aiming to make the economic recovery following the coronavirus pandemic a sustainable one.
Increased demand for renewable energy SCA produces bioenergy and green electricity and More than 100 countries have introduced measures to develops wind power. The company is driving the develop- reduce demand for fossil energy and to increase demand ment of renewable fuels. for renewable energy. One common method is the use of mandatory rules for the use of biofuels.
Circular economy and bioeconomy Every tree that SCA harvests is replaced with at least two Under pressure from an increasing population, con new ones. sumption must be directed towards greater sustainability. Products must be designed to be reused or recycled and Wood products can replace concrete, steel and aluminum. more products need to be based on renewable raw mate- Paper can replace plastic. Biofuel can replace fossil fuels. rials. Disposable plastic products are being banned in the European Union. SCA is working constantly with the innovation and develop- ment of its value chain to maximize benefits and value.
The coronavirus pandemic has accelerated the growth in e-commerce.
17 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Strategy
Strategy for profitable growth
Increased value from each tree
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Growing, renewable forest resource
18 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Strategy
The forest is a renewable resource that forms the core of SCA’s operations. Around the forest, SCA has built a well-invested and efficient value chain. SCA wants to grow its forest resource and further increase the value from each tree.
Increase Invest in the the forest resource integrated value chain
SCA wants to grow as a forest owner and SCA invests to strengthen the integrated 2020 REPORT SUSTAINABILITY AND ANNUAL SCA enhance growth in existing forest assets value chain and provide favorable returns, through active forest management. in parallel with ensuring the company maintains a stable balance sheet.
Increase growth and Increase pulp production harvesting SCA is investing in chemi-thermomechanical pulp (CTMP) at the Ortviken industrial site and is evaluating Increased growth will enable harvesting to gradually opportunities for the continued expansion of the increase by 25% annually. Östrand pulp mill.
Acquire forest land Increase containerboard SCA continues to acquire forest in the Baltic states. production Investment to increase production of containerboard in Obbola, on schedule and on budget.
Optimize conservation Develop business oppor measures tunities in renewable energy Increase the precision and quality in biodiversity Wind power production is increasing on SCA’s land and conservation measures. the development of biofuels and green chemicals is continuing.
Reduce exposure to publication paper In 2020, the decision was taken to completely discontinue the publication paper operations.
SCA’s large forest resource forms the foundation for the company’s operations.
19 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Strategy
Strong project portfolio driving profitable growth
SCA sees significant potential for continued profitable growth. Investments must contribute to SCA’s integrated value chain and enhance the value creation from SCA’s forest resource. Projects must also provide favorable returns and ensure that the company maintains a healthy balance sheet. Total value creation value Total SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Increase CTMP production Kraftliner expansion 9 TWh wind power on Investment: Doubled SCA’s land SEK 1.45bn pulp production Investment in at Östrand Production increase from Obbola paper mill: 100,000 to 300,000 tonnes. Ongoing projects will increase SEK 7.5bn Relocation of CTMP from wind power capacity on SCA’s Production increase Östrand to Ortviken Investment: land to 9 TWh in 2023 from 450,000 to 725,000 SEK 8bn New long-term goal: tonnes Began operation in June 2018 11 TWh in 2025
2018 2023 2023 2023
20 SCA is driving the development of new technology for the production of biofuels and green chemicals. SCA’S ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND SCA’S ANNUAL
Biorefinery
Acquisitions of forest land Continued growth poten- Liquid biofuel tial for pulp Research and development of from crude 15,000 hectares technology Discontinua- tall oil acquired 2020 tion of publica- Pilot plant Opportunity to tion paper Target: further increase pulp 100,000 hectares in Joint venture with St1 production Baltic states 100,000 m3 biofuels Discontinuation of publication paper operations
Approved or completed projects
Being discontinued
2021 Potential projects
Time
21 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Strategy
Transformation – SCA 2025
SCA creates the maximum possible value in the chain: forest – product – customer. The company develops all of the links in this value chain, focusing on growth products and leaving product categories with a weaker development.
Based on its substantial forest resources, SCA has built an growth products with good prospects for profitable develop- industrial ecosystem that creates value, in the forest and from ment. The by-product from one process becomes raw material the forest. The company strives both to grow its forest resources for the next link in the chain. in terms of area, volume and value, and to develop each link in the value chain. The raw material is used in the process and for the product that can generate the most value. Solid-wood products and fiber This change is taking place through product development and products are supplemented with the production of energy and the refinement of existing processes, but also through invest- fuel, for internal use or for delivery to customers. ments in new and growing product categories and by discon tinuing operations with limited future prospects. The company’s industrial sites are constantly developing and production is geared to the most competitive production units Since 2010, SCA has taken important steps in the transformation and those that can generate the greatest value from SCA’s of the company in all business areas. A growing forest resource unique asset, the forest. is further processed in increasingly efficient industries into
Growing Efficient Publication paper forest resource sawmills – discontinued 3 SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Harvesting of own forest (thousand m3sub) Capacity (thousand m ) Capacity (kt)
+1,100 +200 –1,810 km3 km3 kt
m2 m2 kt 6 000 5,400 2 500 2,200 2,300 2 000 1,810 4,800 2,100 5 000 4,300 2 000 1 500 4 000 1 500 3 000 1 000 775 1 000 2 000 500 1 000 500 0 0 0 0 2010 2020 2025 2010 2020 2025 2010 2020 2025
SCA manages its forest assets to The sawmills are key to the value of the Following a gradual reduction in exposure ensure long-term growth and increasing wood. SCA has five well-invested and to publication paper, with its structurally harvesting potential. Harvesting level in efficient sawmills that manufacture declining market, SCA completely exited 2010 and 2025 refers to the harvesting products with a high added value for this product category at the beginning of plan in the respective years, 2020 refers the timber. 2021. to actual harvesting.
22 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Strategy SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Nearly 20% of the wind power capacity in Sweden is located on SCA’s land.
Investment to Pulp – expanding increase production of Rising demand market containerboard for renewable energy Capacity (kt) Capacity (kt) Wind power capacity (TWh)
+880 +340 +10.7 kt kt TWh
kt kt TWh 1500 1,400* 1 200 1,140 12 11.0 200* 1 000 10 1200 1,000 800 865 800 8 900 5.4 1,200 600 6 600 520 400 4 300 200 2 0.3 0 0 0 2010 2020 2025 2010 2020 2025 2010 2020 2025
The increased production of kraft pulp at the The Obbola kraftliner mill is being Thanks to its extensive forest holdings, Östrand pulp mill is being supplemented by expanded from 450,000 to 725,000 SCA has many locations with favorable an increased production of CTMP pulp at the tonnes. The new paper machine will be wind conditions to offer companies Ortviken industrial site. Rising demand for taken into operation in 2023. interested in investing in wind power. hygiene products and board has led to an In parallel, SCA is developing business increased demand for pulp. opportunities in biofuels. * 1,200 refers to approved pulp capacity and 200 to the potential further increase. 23 FOREST Increased growth enables increased harvesting SCA ANNUAL AND SUSTAINABILITY REPORT 2020
24 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Forest
The forest is at the core of SCA’s operations. The forest is managed responsibly and sustainably to provide the foundation for a sustainable supply of renewable Nettoomsättning EBITDA Sysselsattraw materials kapital to the Antalcompany’s anställda industries. Good forest management leads to increased growth, which in turn results in sustained increased harvesting.
Europe’s largest private forest holding mills. Even with the increasing raw material needs resulting secures raw material supply from the company’s growth, SCA has a much higher level of self-sufficiency than comparable forest products companies. SCA owns 2.6 million hectares of forest, of which 2.0 million The large forest holding provides forest products companies hectares are productive forest land. Together with approximately a reliable supply of raw material, facilitates investments and
5 million m3fo of forest land in the Baltic states, SCA’s total allows greater flexibility. 2020 REPORT SUSTAINABILITY AND ANNUAL SCA standing volume amounts to approximately 257 million m3fo. Every tree that is harvested, is replaced with at least two new About 52% of SCA’s raw material needs are provided by wood ones. SCA’s tree nursery produced 104 million seedlings last from the Group’s own forests and woodchips from its own saw- year.
Strategy Financial key figures
• Increase growth and harvesting while SEKm 2020 2019 maintaining high environmental ambitions Net sales 6,486 6,956 EBITDA 2,213 1,740 • Acquire forest that supports SCA industries EBITDA margin, % 34.1 25.0 • Increase the precision and quality in bio Operating cash flow 817 532 diversity conservation measures Strategic capital expenditures 77 - Capital employed 61,706 57,776 Return on capital employed, % 3.4 4.4 Harvesting of own forest, thousand m3sub 4,818 4,419 Average number of employees 618 575
Share of Group 2020
Net sales1) EBITDA2) Capital employed Number of employees
26% 47% 77% 15%
SEK 6,486m SEK 2,213m SEK 61,706m 618 employees
1) Before elimination of intra-Group sales 2) Share calculated of total EBITDA excluding central costs.
Good forest management increases growth in SCA’s forests and the sustainable harvesting level. 25 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Forest
Timber purchases from private forest owners Responsible forest management
Most of the timber that does not originate from SCA’s own forest SCA’s forests are managed sustainably with the aim that they will is purchased from private forest owners with holdings in Northern remain at least as rich in biodiversity, nature experiences and Sweden. With its harvesting and forest management organization raw material in the future as they are today. Preserving biodiver- that covers Northern Sweden, SCA is an attractive partner for sity, the many species of animals and plants, is one of the most forest owners seeking access to highly competent people and the important sustainability targets of SCA’s forestry. Forest areas latest harvesting machines to manage their own forests. Through with high conservation values are set aside from harvesting or its competitive industrial operations, SCA secures demand and managed specifically to maintain or enhance the conservation forest value also for other forest owners. SCA’s expertise and the values. Forest is set aside to provide variety and habitats for resources used in its own forests thereby also benefit other forest sensitive animal and plant species. owners. Timber purchased from private forest owners is supple- mented by purchases from other forest companies and some SCA’s forests have been certified in accordance with the imports from the Nordic countries and the Baltic states. requirements of the Forest Stewardship Council® (FSC®) (FSC® C004466) since 1999 and since 2011 also in accordance Forest acquisitions in Baltic states with the Programme for the Endorsement of Forest Certification (PEFC™). Independent auditors verify that SCA’s forest opera- SCA is continuing to increase its forest holdings. In 2020, the tions fulfill the certification requirements. Products based on company acquired another 15,000 hectares of forest in the Baltic timber from certified forestry can in turn be certified and offered states and now owns more than 40,000 hectares of forest land in to customers with stringent demands on sustainability. SCA also Estonia and Latvia. Compared with SCA’s Swedish holdings, the encourages its suppliers to certify their forest operations. acquired forest is younger, but production conditions and growth are better, as the forest is growing on fertile land and in a warmer SCA’s forestry is certified in accordance with climate. the requirements of the Forest Stewardship Council® (FSC®) and the Programme for the Endorsement of Forest Certification (PEFC™).
SCA’s forests are available to everyone and contain many opportunities for recreation and nature experiences.
Market share and competitors SCA has a 35% market share for timber purchased from private forest owners in Northern Sweden.
Other players in the timber market in Northern Sweden SCA ANNUAL AND SUSTAINABILITY REPORT 2020 include: • Norra Skog (forest-owner association in the four northernmost counties) • Sveaskog (Swedish state-owned forest company) • Holmen • BillerudKorsnäs • Sawmill companies
Laws that govern forest operations and forestry management in Sweden The Forestry Act, has existed in different versions since 1905 and includes mandatory rules for forestry operations in Sweden. It states, i.a., that reforestation must take place after final harvesting; it stipulates limits for the youngest age at which forest can be harvested; and includes an obligation to consider environmental values.
The Land Acquisition Act, regulates the acquisition of forest land. The law states that a legal entity may not net acquire forest land from private individuals, but only from other legal entities. The background to the law is that the Swedish legis- lator wants a certain percentage of the forest to be held by private individuals.
26 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Forest SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
More than 100 harvesting teams with harvesters and forwarders work in SCA’s forests. A significant proportion comprise harvesting contractors.
Climate benefits and biodiversity conservation Harvesting increasing by 25%
Growing trees capture and bind carbon dioxide. SCA’s forests SCA conducts regular, detailed forest inventories. The most have an annual net growth of more than three million forest cubic recent inventory was conducted in 2019. It showed that SCA had meters (m3fo) of timber, which means that the forests binds a net a standing volume, which was 11 million m3fo higher than pre of more than four million tonnes of CO2. This is almost five times viously calculated and a 1 million m3fo higher annual net growth. more than the total CO2 emissions from fossil-based sources in The higher growth is the result of good forest management and all of SCA’s operations, including the forest operations, industrial higher than anticipated growth in SCA’s young and middle-aged production and transportation of raw materials and finished forests in particular. Contorta pine, which has a much higher products, as well as input goods. SCA sets aside important habi- growth rate than Swedish pine, has made a significant con tats for sensitive animal and plant species from forest operations tribution to this growth increase. and manages the forests to improve conditions for species with special requirements. At the same time, the company strives to Using the detailed data from the 2019 inventory of SCA’s forest make these habitats as effective as possible. Growth, meaning assets, the company has prepared a new harvesting plan with the sequestration of CO2, and renewable raw materials are also restrictions, including considerations for nature conservation. important environmental values and SCA is aiming for the best The new harvesting plan means that SCA can increase planned possible balance between these two objectives. harvesting from the previous estimate of 4.3 million m3sub to
Forest portfolio (volume) Growth in SCA’s forest in 20201) Million SEKm m3fo % Pine 39% Opening volume Sweden, 2020 249 Gross forest growth 10.5 4.2% Spruce 37% Natural losses and pre-commercial thinning –1.4 –0.6% Deciduous 14% Available growth 9.1 3.7% Contorta 10% Harvesting2) –5.9 –2.4% Net forest growth 3.2 1.3%
Closing balance Sweden, 2020 252 Holdings in Baltic states 5 Closing volume, 2020 257 1) Timber volume and growth per the forest survey performed in 2019. 2) Equal to about 4.8 m3sub.
27 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Forest
5.4 million m3sub per year. The increase will take place gradually Using the harvesting plan that SCA has now adopted, standing with full effect from 2025. From then on, this will result in an volume will continue to increase, albeit at a slightly slower pace increase in cash flow of SEK 300–400m per year. than in the past.
Since the first forest inventory at the end of the 1940s, SCA’s The planned harvesting level will increase by 25% gradually over standing volume has increased by more than 50% and growth the next five-year period. It will then remain at this new level for has more than doubled. At the same time, the company has ten to 15 years, whereafter it could continue to rise. during these 70 years harvested more than the entire timber volume currently growing in SCA’s forests.
Harvesting of own forest (million m3sub) Standing timber volume (million m3fo)
m m3sub +200% m m3fo +100% 6 300
5 250
4 200
3 150
2 100
1 50
0 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 SustainableUthållig avverkningsnivå harvest level AktuellCurrent avverkning harvesting accordingenligt avverkningsberäkning to the harvesting calculation
The first harvesting calculation in 1950 presented a sustainable harvesting level of The most recent forest survey was conducted in 2019 and measured standing approximately 2 million m3sub. Through good forest management, growth has risen volume of 249 million m3fo at the end of that year. The forest management plan used and in the most recent harvesting calculation the sustainable harvest level was 5.4 for the latest harvesting calculation indicates that standing volume will continue to million m3sub, a level that could be further raised in 10–20 years. rise over the coming decades, at the same time as the harvesting level is increasing.
Forest value SCA’s purchases and divestments of forest land in Sweden In light of the price level of forest land in a number of large and Purchase 2016 2017 2018 2019 2020 recently completed forest land transactions, SCA conducted a SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Volume, thousand m3fo 123 261 197 429 288 review in 2019 of the method used for valuation of the company’s 3 forest assets in its balance sheet. The review showed that a large Price, SEK/m fo 263 259 286 334 294 number of forest transactions take place in areas where SCA has forest assets, that the value of larger forest assets is generally in Divestment 2016 2017 2018 2019 2020 line with the values of smaller and mid-sized forest assets, and Volume, thousand m3fo 176 385 192 959 319 that the value is significantly higher than the previous carrying Price, SEK/m3fo 274 270 268 264 259 amount. Forest land prices, nominal values (SEK/m3) As of December 31, 2019, SCA changed its accounting method 3 for the valuation of the company’s forest assets so that the value SEK/m 800 is based on transactions in areas where SCA owns forest land in Sweden. The average market price on December 31, 2020 used 700 in valuation of SCA’s forest assets was SEK 291/m3fo. Applied to 600 SCA’s standing timber volume of 257 million m3 at the end of the 500 year, the carrying amount of SCA’s forest assets was SEK 74.9bn 400 as of December 31, 2020. 300 200 Ludvig & Co (previously LRF Konsult) is one of the main interme- 100 diaries and providers of market statistics and according to 0 Ludvig & Co, the average price in SCA’s region, Northern 1995 2000 2005 2010 2015 2020 3 Sweden, in 2020 was approximately SEK 296 per m fo standing SouthernSödra CentralMellersta NorthernNorra timber. Forest land prices in Northern Sweden 2016 2017 2018 2019 2020 Price, SEK/m3fo 243 273 269 274 296 Source: Ludvig & Co
28 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Forest
CAGR Total return of 10% per year Total return SCA’s forest (index 1956–2020) 10% The forest creates value in three ways: cash flow from har- Index 40,000 vesting, biological growth and value growth of forest land. 35,000 Harvesting. Harvesting provides raw materials to the industries 30,000 and generates cash flow. Good forest management has helped 25,000 to double the sustainable harvesting level since 1956. 20,000 15,000 Net growth. Over the past 70 years, standing volume has 10,000 increased significantly and growth is far greater than harvesting. 5,000 This will enable a higher level of harvesting and an increase in 0 cash flow going forward. 1960 1970 1980 1990 2000 2010 2020
Land value. The value of forest land in Northern Sweden has Source: The Swedish National Forest Inventory, the Swedish Forest Agency, Ludvig & Co, the National Land Survey, Svefa, FutureVistas risen by more than 200% in real terms and 4,000% in nominal Note: Cash flow is reinvested in forest terms since 1956, according to an estimate by the National Land CAGR: Compound Annual Growth Rate SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Survey.
Altogehter, these three value streams have generated a total return from SCA’s forest assets of approximately 10% per year since 1956.
The Baltic states – a forest region with a potential to grow
Forests in Estonia and Latvia have an part of the Soviet planned economy. SCA’s forest holdings excellent production capacity, which Engagement and resources to replace in Estonia and Latvia for historical reasons is only utilized to the heavily harvested forests with new Forest land area, hectares 40,000 a limited extent. and stronger growing trees were often Land for afforestation, hectares 4,000 lacking. In many cases the result was a Distribution of tree species, Forestry has been an important liveli- naturally regenerated deciduous forest pine-spruce-deciduous, % 23-12-65 hood in Estonia and Latvia for as long with some softwood trees. Standing timber volume, as people have lived there. Estonia has m3fo/hectare 120 2.2 million hectares of forest and Latvia After the fall of the Soviet Union, about Site quality, potential growth 3 3.4 million hectares, which corresponds half of the forests were returned to rate, m fo per hectare and year 6.1 to about half of the land area in each previous owners or were privatized. country. This increased engagement in utilizing the excellent growth opportunities, The land in Estonia and Latvia is largely flat and Forests and agricultural land are inter- which have until today only partly been fertile. Timber production can become very high by utilizing good forest management. spersed in both countries, similar to the realized. In addition to forest land, there plains of southern Sweden. The land- are also large areas of poorly utilized or scape is fairly flat and the ground is overgrown agricultural land with the largely free of stones. potential to become highly productive forest land. Like in Scandinavia, the forest industry and sawmills were established along SCA now owns more than 40,000 hect- with an initial pulp industry at the end ares of forest land with excellent poten- of the 19th century. The two world wars tial for afforestation. The forests are had a heavy impact on the forests in relatively young with a large proportion the Baltic region, which were felled to of deciduous trees. The production provide heating, protection and also capacity of the land is, however, high food for passing armies and a suffering and through good forest management population. the potential can be utilized to create a forest holding with high volumes and Harvesting was also heavy in the for- strong growth. ests in the years following World War II. They were nationalized and became
29 WOOD Digitalization increases timber value SCA ANNUAL AND SUSTAINABILITY REPORT 2020
30 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Wood
A competitive and profitable sawmill industry that utilizes the full potential of the raw material is key to the Nettoomsättning EBITDA Sysselsatt kapitalvalue of Antalthe forest. anställda For forest owners, approximately 65% of revenue is generated from sawlogs.
SCA manufactures processed wood products for the European and use x-ray technology to maximize the yield from every log. building materials trade, as well as for wood industries around The technology means the sawmills can sort, select and adjust the world. the log to suit the requirements of the end product.
SCA operates five sawmills in close proximity to the forest raw SCA also operates planing mills, painting facilities, impregnation
material base. The sawmills are well-invested and are among and is engaged in the further processing of by-products as well 2020 REPORT SUSTAINABILITY AND ANNUAL SCA the largest in Europe with an annual capacity of 2.2 million m3 as distribution to the building materials trade. solid-wood products. They have a high degree of automation
Strategy Financial key figures
• Strengthen SCA’s integrated value chain – SEKm 2020 2019 the most valuable part of the tree is the Net sales 6,296 6,325 sawlog EBITDA 657 789 EBITDA margin, % 10.4 12.5 • Continued profitable growth through: Operating cash flow 573 681 – Volume growth in Bollsta and Tunadal Strategic capital expenditures - 1 – Value-added and customized products Capital employed 3,302 3,443 Return on capital employed, % 11.8 14.6 • Production optimization to achieve the Deliveries, wood products, thousand m3 2,553 2,506 highest level of efficiency Average number of employees 1,165 1,235
Share of Group 2020
Net sales1) EBITDA2) Capital employed Number of employees
25% 14% 4% 28%
SEK 6,296m SEK 657m SEK 3,302m 1,165 employees
1) Before elimination of intra-Group sales 2) Share calculated of total EBITDA excluding central costs.
Through the use of X-ray technology and advanced image analysis, SCA identifies the heartwood from the pine log and produces a naturally durable decking. 31 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Wood
Customized products This focus has enabled SCA to achieve higher and more stable margins over a business cycle and it has delivered a profitable The slow-growing wood from Northern Sweden has a high growth rate of about 10% per year over the past 20 years. proportion of heartwood and small knots, making it suitable for visible wood applications, interior use and products subject to Innovative solutions high quality standards, such as interior and exterior cladding. SCA has chosen to focus on two customer segments that suit The wood industry and building materials trade require innova- these characteristics and that offer the best prospects for tive products that drive sales growth. Thanks to high-quality raw profitable growth. materials, x-ray technology and process control, SCA can offer its customers products such as heartwood pine decking. This is Wood industry. As a supplier to the wood processing industry, as resilient as pressure-impregnated timber, but is manufactured SCA manufactures customized products and components suit- without the use of chemicals. Another new product in the able for further processing by its customers. SCA’s customers building materials industry is SCA’s semi-finished cladding with are mainly manufacturers of furniture, doors, windows, flooring concealed fittings, which provide a more attractive facade, and roofs. easier assembly and greater durability.
Building materials trade. For the building materials trade, SCA Increased competitiveness delivers processed products ready to be offered to consumers, and advanced distribution solutions. SCA supplements its own SCA is investing approximately SEK 600m in a new dry sorting products with products purchased from other suppliers in order line at Bollsta sawmill, where timber is sorted by quality and to offer a complete range of products. Customers mainly include length prior to delivery. The dry sorting line will replace two older building materials suppliers in Scandinavia, the UK and France units and result in higher and more efficient production. Bollsta and the products are used by both professionals and by DIY sawmill is already SCA’s largest sawmill, and one of the most enthusiasts. efficient mills in Europe. It will now further enhance its competi- tiveness.
Sawmills
Munksund, Piteå Capacity: 420,000 m3/year
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Rundvik, Nordmaling Capacity: 330,000 m3/year
Bollsta, Kramfors Capacity: 560,000 m3/year
Tunadal, Sundsvall Capacity: 540,000 m3/year
Gällö, Bräcke Capacity: 330,000 m3/year
Wood processing and distribution Planed products capacity: 600,000 m3/year
Window component capacity: 5 million linear meters/year
Distribution to building materials trade: Scandinavia | France
32 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Wood SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
With the right surface treatment, wood is a material that can withstand tough conditions.
Market trends
Global demand for renewable materials is increasing as is Market share and competitors interest in constructing housing made from wood. Demand for SCA’s share of the European market for softwood wood products has grown by between 2% and 3% annually in solid-wood products is approximately 2%. The market is recent years. In 2020, the coronavirus pandemic had a varying characterized by a large number of mid-sized and small impact on the trends in this market. During the first quarter, suppliers targeting different products and geographic restrictions in most European countries resulted in distribution markets. problems. Demand was strong in the building materials trade in Scandinavia, the UK and the rest of northern Europe and the Other major wood product suppliers in Europe: market prices for solid-wood products strengthened during the year. European exports to the US were high, mainly due to strong • Stora Enso demand from the building materials trade, a high level of new • Binderholz & Klenk Holz construction and lower imports from Canada, where production • Pfeifer Holz declined in the spring and increased in the autumn. • Moelven
Sawlogs are the most valuable part of a tree. SCA’s sawmills can harness their full potential.
33 1 Measuring/SortingMätning/Sortering
4 Sågspån och flis
Distribution
2 Barkning
HyvlingPlaning
Surface- Ytbehandlingtreatment Sågning SCA ANNUAL AND SUSTAINABILITY REPORT 2020 3
PackagingPaketering Kvalitets-Quality- andoch längdsorteringlength sorting
Sortering och ströläggning
5 Torkning
1. Using 3D measuring and x-ray tech- 4. The entire log is used. Woodchips are nology, the log is measured and the right used as pulp raw material and sawdust in raw material is chosen for each product. fuel pellets.
2. The bark is used to produce energy, 5. The timber is dried to the moisture which is needed to dry the timber. content desired for the end product.
3. Thin saw blades and process controls ensure that as much of the log is used for purpose-designed, solid-wood products.
34 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Wood
Computed tomography looks inside the log
SCA is investing in the latest technology at Bollsta sawmill in order to optimize the value of each log. By using computed tomography (CT), image processing and artificial intelligence, the value is optimized 1 Mätning/Sortering all the way from sawlog to end product. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Sawdust and chips 4 Sågspån och flis Every log entering the Bollsta sawmill is analyzed using CT and 3D scanning. By looking into the log, its potential is digitally Distribution analyzed and the best possible product program is chosen for each individual log. It is also possible to select the optimal raw material to suit the customers quality requirements on the products. BarkningDebarking 2 Optical scanning and image processing is used throughout the sawmill’s production chain to monitor quality and to ensure that Hyvling the wood products always comply with their quality standards. Advanced data analysis helps to optimize the product value for customers, and profitability for the sawmill.
Ytbehandling 3 SågningSawing
Paketering Kvalitets- och längdsortering
SorteringSticking andoch ströläggningsorting
5 TorkningDrying
35 PULP Continued expansion SCA ANNUAL AND SUSTAINABILITY REPORT 2020
36 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Pulp
After doubling kraft pulp production at the Östrand pulp mill, SCA is now investing in increased production Nettoomsättning EBITDA Sysselsatt kapital of chemi-thermomechanicalAntal anställda pulp (CTMP).
Leading kraft pulp manufacturer Softwood kraft pulp made of fiber from Northern Sweden is highly valued for its good strength properties. In tissue, it is often The Östrand pulp mill has now reached full production. Östrand combined with pulp based on deciduous trees, such as birch or is market leading in terms of quality, cost efficiency and environ- eucalyptus. Different types of pulp contribute to different proper- mental performance. The mill’s main focus is pulp for tissue, but ties in the final paper. Since softwood kraft pulp contributes to
it also delivers pulp for board and publication paper, together strenght, it cannot easily be replaced by pulp produced from 2020 REPORT SUSTAINABILITY AND ANNUAL SCA with specialty products, such as pulp for filter manufacturing. other wood sources and with other pulp characteristics.
Strategy Financial key figures
• Establish Östrand as the leading SEKm 2020 2019 supplier of softwood kraft pulp for tissue Net sales 4,431 4,377 manufacturers EBITDA 614 983 EBITDA margin, % 13.8 22.5 • Expand and move the CTMP production Operating cash flow 468 716 to the Ortviken industrial site Strategic capital expenditures 79 347 Capital employed 8,781 9,115 • Plan for continued expansion of the Return on capital employed, % 0.8 4.9 softwood kraft pulp capacity Deliveries, pulp, thousand tonnes 839 741 Average number of employees 345 355
Share of Group 2020
Net sales1) EBITDA2) Capital employed Number of employees
18% 13% 11% 8%
SEK 4,431m SEK 614m SEK 8,781m 345 employees
1) Before elimination of intra-Group sales 2) Share calculated of total EBITDA, excluding central costs
The Östrand pulp mill in Timrå has now reached full production. 37 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Pulp
From the forest to finished products in the form of premium quality bleached softwood kraft pulp.
Investment in CTMP Renewable energy and green chemicals
The Östrand mill produces approximately 100,000 tonnes of After its expansion, the Östrand pulp mill has considerably chemi-thermomechanical pulp (CTMP). This is mainly used improved its energy efficiency. The mill meets all of its electricity to manufacture tissue and board. CTMP is used, i.a., in the and heating needs with its own energy production. In addition, middle ply in liquid packaging board to provide stiffness to it delivers about 0.5 TWh of green electricity to the grid and the packaging. some 0.2 TWh of heat to the district heating grids in Sundsvall and Timrå. SCA has decided to invest SEK 1.45bn in a facility for the production of 300,000 tonnes of CTMP at the Ortviken industrial The Östrand mill also produces by-products, such as tall oil and site. Ortviken has existing equipment and infrastructure pre turpentine. Tall oil is used as a raw material in biofuels, while viously used to manufacture publication paper, which can be turpentine is used as a raw material in cosmetics. converted to a highly competitive facility at a low investment cost. The new CTMP plant will be commissioned at the Market trends beginning of 2023. Demand for bleached softwood kraft pulp is growing by about Opportunity for additional capacity 2% per year over time. Prices were low at the start of 2020. The
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 coronavirus pandemic created great uncertainty in the market. When the CTMP plant in Ortviken begins operations, the existing Demand for pulp for tissue increased, while demand for pulp for CTMP capacity in Östrand will be discontinued. This will provide publication paper fell dramatically. Market conditions and prices the conditions for an increase in kraft pulp production at the strengthened during the second half of the year, driven in partic- Östrand pulp mill. ular by rising demand in China.
Östrand pulp mill, Timrå Market share and competitors
Production capacity: SCA’s share of the global market for bleached softwood Bleached softwood kraft pulp (NBSK): kraft pulp (NBSK) is 6%. 900,000 tonnes/year. The pulp is used in, for example, tissue, packaging, publication paper and filters. Other major producers include: • Metsä Chemi-thermomechanical pulp (CTMP): • Mercer 100,000 tonnes/year. The pulp is used in, for example, packaging and hygiene products. • Paper Excellence • Södra Green electricity: 1.2 TWh/year at full pulp production • Ilim/International Paper capacity.
38 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Pulp SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
The pulp is cut into sheets, baled and packaged on the new drying line.
39 CONTAINERBOARD SCA expands in packaging paper SCA ANNUAL AND SUSTAINABILITY REPORT 2020
40 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Containerboard
SCA is discontinuing the publication paper market and the segment will, as of 2021, consist solely of kraftliner, which is a strategic Nettoomsättning EBITDA Sysselsattgrowth kapital area withAntal favorableanställda trends. The investment to increase production is ongoing at the Obbola paper mill.
Leading producer of containerboard pendent supplier. The product portfolio includes a range of spe- cialty products, such as kraftliner with a white printable surface Containerboard is a packaging paper used to manufacture (white-top) and wet-strength kraftliner. Wet-strength kraftliner is corrugated board packaging, and is used for the outer layers of used for packaging with particularly high demands, for example the corrugated board. The vast majority of SCA’s production is packaging for food or heavy goods. The slow-growing wood raw
fresh fiber-based containerboard, known as kraftliner, from the material from Northern Sweden provides strength and is well 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Munksund paper mill in Piteå and the Obbola paper mill in Umeå. suited for material-efficient packaging of high quality. The principal market is Europe. SCA is a leading producer of fresh fiber-based containerboard, being the third largest producer in Europe and the largest inde-
Strategy Financial key figures1)
• Implement the approved investment to SEKm 2020 2019 increase kraftliner production at the Obbola Net sales 7,916 9,229 paper mill EBITDA 1,190 2,064 EBITDA margin, % 15.0 22.4 • Continue the initiative to offer the market’s Operating cash flow 1,201 1,461 best service and product range as an inde- Strategic capital expenditures 1,253 903 pendent supplier Capital employed 7,739 7,471 Return on capital employed, % 10.2 21.8 • Continue investments in specialty products, Deliveries, kraftliner, thousand tonnes 840 812 such as white-top and wet-strength kraftliner Deliveries, publication paper, thousand tonnes 587 688 Average number of employees 1,421 1,423
Share of Group 2020
Net sales2) EBITDA3) Capital employed Number of employees
31% 26% 10% 34%
SEK 7,916m SEK 1,190m SEK 7,739m 1,421 employees
1) Key figures include publication paper and containerboard (Paper segment). As of 2021, the segment will include only containerboard. 2) Before elimination of intra-Group sales 3) Share calculated of total EBITDA, excluding central costs
Corrugated board consists of two sheets of liner (such as kraftliner) separated by a fluted sheet. 41 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Containerboard
Investment in a new paper machine Digitalization is changing media patterns
In September 2019, SCA approved an investment of SEK 7.5bn Demand for publication paper has declined for many years. in the Obbola paper mill. The investment includes a new paper Between 2008 and 2019, demand in Western Europe declined by machine and will result in a production increase for container- 5% per year, as changing communication patterns due to digita- board from the current 450,000 tonnes to 725,000 tonnes. The lization reduced demand for printed media, such as newspapers, new paper machine is scheduled to be commissioned at the magazines and commercial print. The coronavirus pandemic has beginning of 2023. During the investment period, production accelerated this trend. During the first half of 2020, demand for will continue as normal. publication paper fell by a further 30–40% as newspaper stands closed and the advertising market for travel, retail and events The investment in Obbola is on schedule and on budget. decreased dramatically.
Market trends SCA has gradually reduced its exposure to publication paper. In 2020 only the Ortviken paper mill in Sundsvall remained, with its The containerboard market continues to grow, even during the production of coated and uncoated publication paper on three coronavirus pandemic. Expanding e-commerce and the transi- paper machines. tion from plastic packaging to renewable materials is boosting demand for high-quality packaging paper. Demand for meeting On September 11, SCA decided to completely discontinue food safety standards and for retail-ready packaging, which can publication paper operations and close all three paper machines be displayed directly in stores, increased interest in fresh fiber- at Ortviken. This resulted in the loss of about 800 jobs, primarily based packaging without chemicals, with high printability and at the Ortviken industrial site but also in other parts of SCA’s strength. Market prices for kraftliner declined during 2020 due to operations. The Ortviken industrial site will switch to produce the slowdown of the global economy. Towards the end of the chemi-thermomechanical pulp (CTMP) and to provide room for year, however, demand improved and inventory levels declined. external operations, such as Renewcell’s recycling of textile fiber. Ortviken is an attractive industrial site with good infrastructure and excellent logistics facilities.
SCA has developed Arcwise, a technology to make corrugated board packaging in all shapes. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
42 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Containerboard SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
SCA is expanding its kraftliner production at the Obbola paper mill.
Containerboard Market share and competitors
Obbola, Umeå Kraftliner Production capacity: 450,000 tonnes/year SCA’s share of the market for kraftliner in Europe is 12%. Product range: brown kraftliner, for consumer and transport packaging with a focus on lightweight Other major producers include: and standard grades. • Smurfit-Kappa • Mondi Munksund, Piteå • Metsä Production capacity: 415,000 tonnes/year • Stora Enso Product range: brown and white-top kraftliner, for consumer and transport packaging. Specialized in heavy-duty, wet-strength and white-top grades.
43 RENEWABLE ENERGY SCA is driving the development of bioenergy SCA ANNUAL AND SUSTAINABILITY REPORT 2020
44 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Renewable energy
Energy is an increasingly important part of SCA’s value chain. By-products and waste from the company’s forest operations and industries are turned into green energy and generate new business opportunities. In parallel, the production of wind power on SCA land is increasing.
Doubled wind power production provides SCA produced 10.8 TWh of bioenergy in 2020. Of this, 9.1 TWh SCA with higher ground lease payments was used in SCA’s own plants and 1.7 TWh was delivered to external customers. Of the external deliveries, 0.9 TWh was As Europe’s largest private forest owner, SCA has many areas processed biofuels, meaning wood pellets, and 0.8 TWh was of land with favorable wind conditions. A significant expansion unprocessed biofuels. SCA’s production capacity at fully or
of wind power is currently taking place. At the end of 2020, the partially owned plants is 300,000 tonnes of pellets per year. 2020 REPORT SUSTAINABILITY AND ANNUAL SCA capacity for wind power production on SCA’s land was 5.4 TWh per year, equivalent to about 20% of the total wind power pro- Biofuels and green chemicals duction in Sweden. By the end of 2023, capacity will have risen to 9 TWh per year. The higher production at the expanded mill in Östrand will also increase the manufacture of tall oil, a by-product from kraft pulp SCA prepares and develops wind power projects for investors production. SCA and the Finnish energy company St1 have initi- who are interested in investing in green energy. As the land ated cooperation to evaluate the investment in a facility to pro- owner, SCA receives a ground lease payment usually based duce liquid biofuel at St1’s refinery in Gothenburg. The invest- on revenue from the sale of the green electricity produced. ment could yield an annual production of 100,000 m3 of liquid biofuel, equivalent to about 1% of Sweden’s total needs. SCA has set as a long-term goal that wind power production on the company’s own land will amount to 11 TWh in 2025, equiva- SCA has recieved an environmental permit at the court of first lent to the electricity needed to electrify all passenger cars in instance to build a biorefinery at the Östrand pulp mill. The com- Sweden. pany is evaluating the potential to manufacture liquid biofuel from black liquor, a by-product from pulp manufacturing. SCA’s Leading supplier of biofuels proprietary process is being tested in a pilot plant at the Obbola paper mill. SCA is also evaluating the potential to produce liquid All timber that can be sawn is used for solid-wood products. biofuel from solid biomass, such as sawdust. Both projects can The wood raw material that cannot be used for wood products utilize the industrial infrastructure available at the Östrand pulp is used to produce paper and pulp. The by-products from forest mill and the by-products generated by SCA’s industrial produc- operations and industry that are not suitable for use as fresh tion. SCA has set as a long-term goal to manufacture 260,000 m3 fiber are used in energy production. A large proportion of bio liquid biofuel from forest by-products, a volume corresponding energy is used at SCA’s own plants and contributes to SCA’s to all fuel used in domestic flights in Sweden. very small carbon footprint.
Strategy • Maximize wind power on SCA’s land and develop viable projects for investors • Optimize production, product portfolio and profitability in the biofuel business • Commercialize business opportunities in biofuels and green chemicals
SCA has the capacity to produce 300,000 tonnes of pellets per year. Pellets is both an industrial fuel and a consumer product.
45 LOGISTICS Efficient logistics a prerequisite for profitability SCA ANNUAL AND SUSTAINABILITY REPORT 2020
46 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Logistics
Logistics is a central part of SCA’s operations. Forest raw materials are delivered to industrial facilities and products are shipped to customers worldwide. Following the discontinuation of publication paper, SCA’s logistics system for finished goods is being adapted to focus on kraftliner, pulp and solid-wood products.
The forest industry is a logistics-intensive industry. Logistics Delivery of finished products account for about 20% of SCA’s cost base. To optimize freight flows, SCA has set up its own logistics system in both raw mate- During a turbulent year such as 2020, it has been particularly
rial supply and the distribution of finished products. Within forest important to have our own logistics organization and control over 2020 REPORT SUSTAINABILITY AND ANNUAL SCA operations, SCA is one of Sweden’s largest users of rail trans- transportation. This contributed to swift and flexible solutions as port, with its own transportation system from inland forests to conditions changed rapidly. industrial sites on the coast. SCA’s railway system for the trans- portation of round timber is the largest in Europe. Most of SCA’s finished product transportation uses ships. SCA’s exit from the publication paper area changes the situation for Raw-material transportation logistics. Pulp and solid-wood products are transported using bulk carriers and containers. The planned expansion of the ports Timber is taken from forests throughout Northern Sweden. in Sundsvall and Umeå allows for larger vessels and more effi- All timber transportation starts on trucks. If the distance to the cient container handling. factory is short, the timber is driven directly by truck. If the dis- tance is greater than about 100 kilometers, the timber is driven SCA operates container feeders between Umeå, Sundsvall and to a rail terminal and then transported to the factory by rail. Rotterdam, where containers are reloaded to and from ocean- going vessels, barges and rail. The increased timber requirement of the expanded pulp mill in Östrand is to a large extent delivered by rail. Timber can also be SCA’s RoRo vessels are being optimized to transport kraftliner. transported from Southern and Central Sweden at a competitive These vessels operate scheduled services and timetables cost by using efficient rail transportation. between SCA’s terminals in Umeå, Sundsvall, Kiel, Rotterdam and London. Efficient road transportation is economic and environmentally friendly. Timber trucks with a 74-tonne capacity are now per- The use of this transportation system enables SCA to maintain mitted on Swedish roads. These trucks can transport 15% more a high level of customer service at low transportation cost and timber and reduce environmental impact at the same time. environmental impact. A limited, but growing, part of the road network in Northern Sweden is available for 74-tonne trucks. SCA is working to make To optimize capacity utilization, SCA offers cost-efficient a greater number of roads available for these more efficient logistics solutions for external customers. Both RoRo and con- trucks. SCA swaps timber with other forest products companies tainer ships are used to ship freight mainly northbound from to reduce transport distances to industry and thereby reduce terminals on the continent. These ships deliver, i.a., input goods costs and emissions as much as possible. to industry and consumer products in Southern and Central Sweden, before taking the empty containers to SCA’s industries in the north.
Within Sweden, SCA operates rail shuttles between Piteå, Umeå and Skövde for deliveries to customers in southern Scandinavia. The same block trains transport production materials north- bound.
The share of containerized freight transport of SCA’s products is constantly increasing.
47 Sustainable development
A sustainable path towards 2030 SCA ANNUAL AND SUSTAINABILITY REPORT 2020
48 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Sustainable development
Sustainability is an integrated part of SCA’s entire business. In order to make long-term priorities and to ensure sustainable development, SCA has set Group targets to be achieved by 2030.
Fossil-free Valuable Efficient use of Responsibility for world forests resources people and communities 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
SCA generates climate SCA’s forests shall be at All wood raw material that SCA is to create a safe and benefits through growing least as rich in biodiversity, can be sawn is used for positive work environment forests that binds CO2, nature experiences and raw wood products. Timber that for its employees and renewable products that material in the future as is not used for wood contribute to the replace fossil-based they are today. products becomes paper development of the products and lowering and pulp. Anything communities where the emissions from its own unsuitable for use in fiber company operates. value chain. products is used for energy.
Group target 2030 Group target 2030 Group target 2030 Group target 2030 Increase SCA’s climate 100% of wood raw material Zero waste. An accident-free and benefit from 10 to 15 million to come from responsibly healthy SCA. tonnes of CO2 per year. managed forests.
Profitable growth Long-term profitable growth is a prerequisite for sustainable development. Group target 2030: Leading total shareholder return.
Values With the force of the forest, we contribute to a sustainable future. Group target 2030: All employees comply with SCA’s Code of Conduct.
Sustainability as part of the business model
From well-maintained forests, SCA harvests a renewable raw The sustainability platform describes SCA’s entire business. material to manufacture products in its resource-efficient value In order to deliver progress in sustainability, the company has chain, products that can replace those that leave a bigger adopted Group targets in particularly important areas where carbon footprint. SCA can make a key contriubute towards sustainable development. Sustainability is an important aspect in each of the company’s activities. In crucial areas, SCA can contribute to sustainable These long-term targets will guide long-term priorities. The development, but the company must also strive to reduce any targets, which are also broken down into interim targets, are environmental impact from its operations. It is important to have to be achieved by 2030. a holistic view to find an optimal balance between different sustainability priorities.
SCA has the capacity to produce more than 100 million seedlings per year. 49 FOSSIL-FREE WORLD Increased climate benefit SCA ANNUAL AND SUSTAINABILITY REPORT 2020
50 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Fossil-free world
Growing forests bind CO2 and renewable products replace fossil-based products. SCA’s climate benefit, which is already substantial, is to increase by 50% by 2030.
Forest, products and low emissions SCA will continue to manage its forest to generate valuable growth and will increase its forest assets through acquisitions. The climate is becoming warmer and the main reason for this is The company will increase production of renewable products human use of fossil carbon and the resulting emissions of green- and develop products that contribute even more to combating house gases. climate change, for example by increasing biofuel production.
Finally, SCA is to halve the greenhouse gas emissions from the 2020 REPORT SUSTAINABILITY AND ANNUAL SCA SCA’s operations impact the climate in three ways. Trees bind entire value chain by choosing efficient and sustainable tech- CO2 when they grow and SCA’s forests have a high level of net nology. growth. SCA manufactures products from the wood obtained from these forests to replace products that leave a much bigger Increased production of renewable electricity carbon footprint. Wood substitutes steel and concrete. Paper substitutes plastic. Biofuel substitutes fossil fuels. By using SCA’s forests not only produce renewable raw materials, but also products based on renewable forest raw material, fossil carbon offer locations with favorable wind conditions. A further contri- stays in the ground. SCA’s activities do, however, give rise to bution to climate efforts is the wind power generated on the fossil carbon emissions, particularly from the transportation of company’s land. SCA prepares investments in wind power raw materials and products. production that are undertaken by the company’s partners.
SCA delivers climate benefit The capacity of existing turbines and for turbines under construction will amount to 9 TWh in 2023. The target is to SCA’s target is to increase its climate benefit by 50% by 2030. reach a capacity, in operation or being built, of 11 TWh in 2025, To achieve this, the company must work on all three areas. equivalent to the electricity needed for the electrification of all passenger cars in Sweden.
SCA’s climate benefit Corresponds to fossil emissions from Sweden’s passenger cars
SCA’s climate benefit Mtonnes 6 9.6 million tonnes 4 of CO2 2
Climate benefit in million tonnes of CO2e 2020 2019 0 Net uptake in own forest 4.4 5.4 Emissions -2 Net uptake Product Products, substitution effect 6.1 6.0 of forest substitution in the Value chain (Scope 1, 2 and 3) –0.9 –0.9 value chain Total climate benefit 9.6 10.5 2019 2020
The table shows SCA’s climate benefit in accordance with the model described by Holmgren and Kolar, see sca.com Read more on page 148.
Growing forests and renewable products counteract a warmer climate. 51 VALUABLE FORESTS Preserving biodiversity SCA ANNUAL AND SUSTAINABILITY REPORT 2020
52 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Valuable forests
All flora and fauna in SCA’s forests are to have a habitat in which they can live long into the future. Accordingly, SCA is improving the precision in biodiversity conservation in the forest.
Nature conservation in forestry SCA has identified 203 species on the Swedish Red List with special requirements on their habitats. We refer to this as our Forests in Northern Sweden grow slowly and the rotation period species commitment. The company has made special plans for between harvests is close to 100 years and sometimes even these species to ensure access to suitable habitats. This may longer. SCA’s forest operations systematically integrate nature involve identifying the habitats to set aside from forest opera-
conservation measures in all forest management activities. By tions, or creating new habitats that forest operations with general 2020 REPORT SUSTAINABILITY AND ANNUAL SCA retaining buffer zones, groups of trees, dead wood and a large retention measures do not create. number of other measures, habitats are protected for most of the forest’s flora and fauna. Responsible wood supply
Large parts of SCA’s forest holding consists of reindeer grazing All of SCA’s forest holding is certified under both FSC and PEFC. land, land where reindeer graze primarily in the winter. SCA Approximately 52% of the company’s need for raw materials adapts its forest operations to facilitate reindeer herding in close comprises wood from its own forests and woodchips from its consultation with the Sami communities that herd reindeer on own sawmills. The remaining raw materials are purchased from SCA’s land. These measures may involve postponing the harvest private forest owners in Northern Sweden, other forest compa- of trees with lichen or adapting snow clearance on forest roads nies and forest owner associations. A small share is imported. to help migrating reindeer. The traceability of the wood raw material is ensured by SCA’s wood sourcing being third-party certified in accordance with Create and protect habitats FSC Chain of Custody and PEFC Chain of Custody.
However, there are flora and fauna that are adversely impacted SCA strives to maximize the proportion of certified wood raw by forest operations despite good conservation measures. material by encouraging its wood suppliers to certify their forest These are species with specific requirements on their habitats. operations. As a minimum requirement, the raw material must This may involve species that need burned earth or wood, or comply with FSC’s Controlled Wood Standard. This means that species that need old, dying deciduous trees. Species may also SCA actively refrains from purchasing illegally harvested forest need conditions that are stable and undisturbed by forest or forest from controversial sources. It also safeguards that the operations for many years. timber is harvested with the appropriate nature conservation measures.
Responsible forest management Through responsible fiber sourcing in combination with the protection of biodiversity
Responsible fiber sourcing Habitats for SCA’s species commitment
Certified forest manage- 63% Forestry with habitat retention 61%
ment SCA forest land Proportion of habitat retained 8% Chain of custody certified 18% 2.6 million ha after harvest with SCA retention Adapted management of habitats 2% Chain of custody certified 19% Voluntary set-asides of habitats 6% Non-productive land with habitats 7% 100% of the wood raw material is chain of custody certified, the Other non-productive land 16% minimum requirement under the FSC Controlled Wood Standard. 81% is harvested in accordance with higher nature conservation standards.
Read more on page 151.
The forest contains a diversity of flora and fauna and SCA strives to ensure they can all find a habitat. 53 EFFICIENT USE OF RESOURCES Zero waste SCA ANNUAL AND SUSTAINABILITY REPORT 2020
54 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Efficient use of resources
SCA strives for efficient resource utilization in every link of the value chain. By-products are used as raw material for new production processes or for energy. The ambition is zero waste.
Increased benefit through innovation Water is in short supply worldwide. SCA’s operations are located in a geographical area with a plentiful supply of fresh water. SCA has made a great deal of progress in terms of making use of Fresh water is almost entirely obtained from surface water sup- raw materials, by-products and side streams. But there still plies and is reused several times in the company’s processes. remains a big potential to increase total benefit in the value chain Today the focus is on minimizing the environmental impact by
through innovations. Fifty years ago, sawdust was sent to landfill. working to reduce emissions to water and air. 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Thirty years ago, sawdust was incinerated to produce heat. Today, sawdust is used in pellets production and pellets are used Efficient transportation as an advanced fuel in chemical recycling by the pulp industry. Technology is now under development to manufacture advanced Transportation is an important component of SCA’s operations, biofuels and green chemicals from sawdust. both in terms of transporting raw materials to the company’s industries and to transport end products to our customers. SCA Raw materials are also used more efficiently. Using modern tech- always strives to optimize transport solutions, for example nology to see inside logs, it is possible to precisely manufacture through load optimization and coordination. solid-wood products that take full advantage of the log’s potential. This yields higher value and less waste. The entire tree is used. An efficient railway system and trucks that can carry heavier loads without increasing road wear are important ways to Resource efficiency at every stage develop raw material transportation.
SCA continuously works to further improve resource efficiency. Larger vessels and an efficient container system improve the The sawmills work in various ways to improve yield and the pulp effectiveness of transporting finished goods and reduce environ- mills to improve wood consumption levels. Currently, more than mental impact. Efficiency is further improved by handling 65% of fresh fiber is used for wood products, paper, pulp and external freight in northward flows. pellets. Other valuable products, such as tall oil and turpentine, are extracted and processed. The remaining raw material is used for energy, with as much as possible used to generate electricity.
Nothing goes to waste in the sawmill – example of ef cient use of resources
Pulp paper mills Pulp is refined into products Energy products and district heating By-products Innovations to develop new applications ips im er a mill olid ood products
ne r g
t er products Sawdust is refined into pellets
Bark and fuel chips become energy Read more on page 153.
One important part of SCA’s development work is to find more valuable uses for by-products and residual products. 55 RESPONSIBILITY FOR PEOPLE AND THE COMMUNITY Everybody should return home safe and sound SCA ANNUAL AND SUSTAINABILITY REPORT 2020
56 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Responsibility for people and the community
SCA works systematically to achieve a health and safety culture where all employees are engaged and look out for each other. In 2020, the coronavirus pandemic created new demands on planning for the health and safety of employees.
Accident-free and healthy have been affected. Most of these are at the Ortviken paper mill in Sundsvall, though the organization and staffing levels in all As part of the Zero program, SCA endeavors to create a mature parts of the Group were re-sized according to the new situation. health and safety culture throughout the company and to reduce On the day the decision was taken, all of the affected employees the number of accidents towards zero. Positive progress was were informed about the changes as quickly as possible. At the made during the year. Change is continuing as SCA moves 2020 REPORT SUSTAINABILITY AND ANNUAL SCA same time, as negotiations began about the discontinuation of toward its strategic objective. publication paper operations, SCA initiated collaboration with The coronavirus pandemic has entailed dramatic new circum- the Sundsvall Municipality and with organizations providing stances for SCA’s employees and operations. When the pan- support during transitions. demic broke out, restrictions were introduced on visitors and SCA is investing in the production of chemi-thermomechanical travel to reduce the risk of spreading the virus, to protect risk pulp (CTMP) at the Ortviken industrial site and during the year groups and to keep up operations and supplies. Workplaces signed an agreement with the textile recycling company and procedures were adapted to ensure that employees could Renewcell, who will set up a new production entity creating work safely. about 100 jobs in Ortviken. One particular challenge was the necessary maintenance stops carried out by SCA’s paper and pulp industries, where a large num- Creating value in the local community ber of experts from different engineering and service companies are needed to provide focused action for a limited time. Due to SCA makes an active contribution to vibrant local communities careful planning and targeted action, the maintenance stops were and to regional development. SCA’s operations contribute posi- carried out without disruption or increasing the spread of the virus. tively in both direct and indirect ways, such as job opportunities, revenues from timber sales for private forest owners and work Responsible restructuring opportunities for contractors and sub-suppliers. In addition, SCA provides income and experiences from hunting, fishing, During the year, SCA resolved to discontinue its publication recreation and local associations. SCA supports local sports paper operations following decades of shrinking demand, further clubs and cultural associations to help provide meaningful accelerated by the coronavirus pandemic. Some 800 employees leisure activities and attractive places to live.
DuPont Bradley Curve™ Towards a health and safety culture - where everyone looks out for each other
Natural instincts Supervision Self Team Personal knowledge Help others conform
TARGET Risk of injury
Reactive Dependent Independent Interdependent Safety by natural instinct Comply with rules Personal knowledge, Helps others conform Does not believe in the vision because I have to. commitment and standards Care for others of zero workplace accidents. Care for self Organizational pride
Relative cultural strength Read more on page 156.
SCA strives to build a safety culture that prevents accidents and improves health. 57 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
The share and shareholders The share and the shareholders The SCA share is quoted and traded on Nasdaq Stockholm. In 2020, the company’s share price increased by 51% and the market capitalization was approximately SEK 101bn at the end of the year.
Share performance 2020 Ownership structure At the end of 2020, SCA’s Class B share was listed at a price SCA had approximately 105,000 shareholders as of December of SEK 143.30 (95.00) and SCA’s Class A share at SEK 147.80 31, 2020. Some 61% (67) of the share capital was owned by (99.90), corresponding to a market capitalization of SEK 101bn Swedish investors and 39% (33) by investors outside of Sweden (67). SCA’s Class B share increased by 51% (38) during the year. at the end of the year. The US and Norway accounted for the During the corresponding period, the index of the 30 most traded highest percentage of shareholders registered outside Sweden. shares, OMX Stockholm 30, rose by 6% (26). The highest closing price for SCA’s Class B share was SEK 143.45, which was noted on December 16. The lowest closing price was SEK 77.88, noted Share structure on March 18 during a period when the stock market as a whole SCA’s share capital comprises two classes of shares, shares of was negatively impacted by the initial phase of the pandemic. Class A and of Class B. Each Class A share carries ten votes and The total shareholder return for SCA’s Class B share in 2020, each Class B share carries one vote. Class A and Class B shares being the share performance during the year combined with the hold the same right to dividends. Both share classes are listed on dividend, was 51%, which compares with total shareholder Nasdaq Stockholm and are part of the Large Cap segment. return for OMX Stockholm 30 of 7%. Since the distribution of Essity in 2017, the total return for SCA’s Class B share has been 138%, which compares with total return for OMX Stockholm 30 Dividend and dividend policy of 26%. SCA aims to provide long-term stable and increasing dividends to its shareholders. When the cash flow from current operations ex- ceeds that which the company can invest in profitable growth over Share trading the long term, and under the condition that the capital structure During 2020, trading on all marketplaces amounted to approxi- target is met, the surplus shall be distributed to the shareholders. mately 1,611 (1,658) million SCA shares. The largest share of trading was on Nasdaq Stockholm, where some 606 (670) million No dividend was paid for the 2019 fiscal year due to the uncertainty SCA shares exchanged hands. Average daily trading for SCA on surrounding the coronavirus pandemic. The Board of Directors
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Nasdaq Stockholm amounted to approximately 2.6 million proposes a dividend of SEK 2.00 per share for the 2020 fiscal year. shares. During the year, the SCA share was also traded on other market places, of which approximately 137 million shares on Shareholder communication and equity CBOE Chi-X, approximately 32 million shares on Turquoise and analysts approximately 836 million shares on other market places. Information about the company in the form of reports, presenta- tions and financial data, as well as an up-to-date list of analysts monitoring SCA, are available at sca.com. Total shareholder return, index
2 0 200
200 0
0 00 I
00 0 N N
0 0 20 20 20 2020
SCA B OMX Stockholm 30 Number of shares traded on Nasdaq Stockholm per month (millions)
58 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
The share and shareholders
SCA’s ten largest shareholders, as of December 31, 2020 Shareholders by country, No. of No. of capital Class A Class B Capital Votes Shareholders shares shares (%) (%) Industrivärden 33,785,290 38,300,000 10.3 29.3 Norges Bank 8,066,000 42,446,457 7.2 9.6 AMF Pension & Fonder 2,015,000 68,282,868 10.0 6.9 Handelsbanken Pension fund 3,827,747 5,846,050 1.4 3.4 Alecta Pensionsförsäkring 30,586,095 4.4 2.4 Swedbank Robur Funds 26,990,859 3.8 2.1 T. Rowe Price 22,909,135 3.3 1.8 BlackRock 22,198,763 3.2 1.7 Vanguard 195,098 17,545,150 2.5 1.5 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Sweden 61% Livförsäkringsbolaget Skandia 1,477,226 4,267,382 0.8 1.5 US 15% Ten largest 49,366,361 279,372,759 46.8 60.2 Other 15,221,311 358,382,058 53.2 39.8 Norway 8% Total 64,587,672 637,754,817 100.0 100.0 Other 16% Source: Monitor by Modular Finance. Compiled and processed data from various sources, including Euroclear, Morningstar and the Swedish Financial Supervisory Authority. The verification date may vary for certain shareholders.
Shareholder structure, as of December 31, 2020 No. of share- No. Capital Votes Holding holders of shares (%) (%) Earnings per share (SEK)1) 1 – 500 77,448 10,407,392 1.5 1.7 501 – 1,000 12,154 9,370,910 1.3 1.5 1,001 – 5,000 12,692 27,570,600 3.9 4.5 5,001 – 10,000 1,699 12,199,348 1.7 2.0 10,001 – 20,000 668 9,430,465 1.3 1.3 3.19 20,001 – 50,000 337 10,637,009 1.5 1.6 1) Excluding the effect of one-off items related to the discontinuation of publication paper 50,001 – 100,000 123 8,765,769 1.2 1.2 operations. 100,001 – 243 564,663,312 80.4 82.8 Anonymous owners 49,297,684 7.0 3.4 Total 105,364 702,342,489 100.0 100.0 Source: Modular Finance.
Share price and trading volume 2020 Proposed dividend per share (SEK) 0 200
2 0 2.00
00 00 S SE S
0 N
0 0 A A S O N D
SCA B OMX Stockholm 30 Number of shares traded on Nasdaq Stockholm per month (millions)
59 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Board of Directors’ Report
Board of Directors’ Report
SCA is Europe’s largest private forest owner with 2.6 million hectares of forest land in Northern Sweden and the Baltic states. The forest is a real asset, which grows each year and forms the core of SCA’s operations. Around this renewable resource SCA has built a well-invested and efficient value chain, which maximizes the value of each tree.
Operations and organizational structure The most valuable part of the tree is used for sawlogs and as much as possible of the timber is sawn to become solid-wood The core of SCA’s operations is the forest. Around this resource, products for industrial customers and the building materials SCA has built an integrated and well-invested industry, which trade. Bark is used in energy production. Woodchips together utilizes and maximizes the value of the entire tree. Using the raw with the upper part of trees are used to make pulp and paper for materials, SCA develops products for customers all over the further processing by customers into tissue and packaging. world with high demands on quality, delivery reliability, service Sawdust is used to make pellets for energy production at SCA and sustainability. and externally. Steam and by-products from pulp production are used to deliver heat to the local district heating system, generate green electricity and in the future also produce liquid biofuels or green chemicals.
Organization and reported segments The supporting unit Sourcing & Logistics includes SCA’s SCA is organized into five business areas and one common sourcing functions. The unit is also responsible for supporting unit. SCA’s logistics system for deliveries to customers using specially adapted vessels and terminals both in Sweden and Business areas in key foreign markets.
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 • The Forest business area has the overall responsibility to supply SCA’s industries with wood raw material. The busi- Staff functions ness area is responsible for managing and harvesting on SCA has five corporate staffs: Communications, Human SCA’s own forest land in Sweden and the Baltic states, for Resources, Finance, Legal Affairs and Strategic Develop- sourcing wood raw material from other forest owners and ment. for transporting the wood raw material to SCA’s industries. Segments • The Wood business area is responsible for the solid-wood SCA’s financial reporting is conducted in four segments, business, which comprises five sawmills in Sweden, wood which are slightly different to the business areas described processing units and distribution and wholesale operations above, since Renewable Energy is not a separate segment. for wood products in Sweden and France. • The Pulp business area is responsible for the pulp busi- The forest segment includes the Forest business area and ness, consisting of kraft pulp (NBSK) and chemi-thermo- activities in sustainable energy linked to the forest that are mechanical pulp (CTMP), both currently produced at the managed by the Renewable Energy business area, primarily Östrand pulp mill. wind power leases and the sale of by-products from the forest for energy purposes. The Wood segment includes the • The Containerboard business area is responsible for the Wood business area and the activities linked to the sawmills containerboard business, with manufacturing of kraftliner that are managed by the Renewable Energy business area, at the Obbola and Munksund paper mills. In 2020, SCA primarily pellets production. decided to discontinue publication paper operations. • The Renewable Energy business area operates and The Wood, Pulp and Containerboard segments also include develops SCA’s business in the renewable energy segment, an allocation of the results of the support unit Sourcing & which includes the development of wind power projects, Logistics, equivalent to the resources of the support unit pellets manufacturing and sales, and the use of biomass used by each business area. The Forest business area does and by-products from industry in energy production. not use the support unit’s logistics services.
60 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Board of Directors’ Report
Organization
President and CEO
Corporate Staffs
Communications Human Resources Finance
Legal Affairs Strategic Development
Business Areas
Forest Wood Containerboard SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Pulp Renewable Energy
Support Units
Sourcing and Logistics
Events during the year The new paper machine is being constructed in a new building, alongside the current paper machine. This means the plant will Investments be in full operation during the construction period and will switch Investment in expanded pulp capacity over from the old machine to the new one ahead of the start-up During the year, SCA decided to invest SEK 1.45bn in the pro- of the new facility in 2023. The new machine’s ramp-up to full duction of chemi-thermomechanical pulp (CTMP) to achieve an capacity is expected to take three years. The investment is on annual production volume of 300,000 tonnes of CTMP pulp at schedule and on budget. Ortviken. Existing infrastructure and some parts of the pre- existing publication paper production facility will also be utilized. New dry sorting line in Bollsta The investment will begin in 2021 and production is expected to SCA resolved in 2019 to construct a new dry sorting line at the start in the new facility in early 2023. Today SCA has a capacity sawmill in Bollsta that will replace two old lines. The total invest- of 100,000 tonnes of CTMP pulp at the Östrand pulp mill. This ment will amount to about SEK 600m over a three-year period production will be phased out when the new facility begins oper- and is funded within the company’s existing framework for ation. The investment is recognized as a strategic investment. current capital expenditure. The reinvestments will concentrate operations to a single location, which will reduce production SCA invests in Obbola kraftliner mill costs, increase efficiency and create a clear foundation for In 2019, SCA decided to build a new paper machine for the pro- continued expansion. duction of kraftliner at its Obbola paper mill in Umeå Munici- pality. Production in Obbola will increase from the current Acquisitions 450,000 tonnes of kraftliner to 725,000 tonnes per year to meet Acquisition of forest land in the Baltic states an expected increase in demand for renewable packaging. The During the year, SCA acquired forest in Latvia with a land area of total investment will be approximately SEK 7.5bn over a five-year approximately 19,150 hectares, of which approximately 13,200 period and is recognized as a strategic investment. The invest- hectares is forest land. The acquisition strengthens SCA’s long ment includes environmental investments of approximately SEK term opportunities to source timber in the region. The transac- 1bn, which, for example, will reduce oil consumption by 8,000 tion was completed in the fourth quarter of 2020 and the pur- cubic meters per year and improve the water treatment capacity. chase price was approximately SEK 450m. At the end of the year, The investment will also replace necessary reinvestments in SCA’s forest holding in the Baltic states totaled just over 40,000 Obbola of about SEK 2.5bn. hectares of forest land.
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Board of Directors’ Report
Discontinuations Financial performance SCA discontinues publication paper manufacturing SCA decided in September 2020 to discontinue the publication Net sales paper operations consisting of three paper machines at the Ort- Following a period with a weaker market, falling prices and rising viken industrial site with annual sales of approximately SEK 4bn. inventory levels in the first haft of 2020, the market gradually Demand for publication paper in Western Europe has declined improved for all product categories except publication paper, by more than 5% per year since 2008. The outbreak of the coro- which continued to weaken. Net sales amounted to SEK 18,410m navirus pandemic has accelerated this decline in demand for (19,591), a decrease of 6%, of which price/mix SCA’s publication paper grades by an additional approximately accounted for –8%, volume for 2%, currency for 1% and divest- 30%. All three paper machines were closed sequentially during ments for –1%. The decrease was mainly related to lower selling the first quarter of 2021. prices in all segments and lower delivery volumes in publication paper, which were offset by higher delivery volumes in other The discontinuation of publication paper operations generated product categories. one-off items that had a negative impact on profit for the year. A summary of the one-off items primarily related to the discontinu- In addition to net sales, SCA’s other operating income amounted ation of publication paper operations is shown in the table below. to SEK 1,620m (2,191) in 2020. Other operating income com- On December 31, 2020, provisions totaled SEK 756m. For further prises products and services that are not finished products in information concerning provisions, see Note D8 on page 111. The Wood, Pulp and Paper, such as energy products, sales of freight earnings impact from these one-off items is recognized in the services to external customers and wind power leases. segment Other. SCA is an export-oriented company and approximately 85% of SEKm 2020 net sales relate to sales outside of Sweden. The largest indi- Provisions arising from restructuring costs –756 vidual export markets are the UK (19% of net sales), Germany Impairment of working capital –272 (12%) and France (5%). Other –19 Cost structure Impact on EBITDA –1,047 SCA’s total operating expenses in 2020 were SEK 15,590m Impairment of non-current assets –647 (16,463), a decrease of 5% compared to 2019. Operating Impact on operating profit –1,694 expenses were reduced due to a positive change in the value of biological assets of SEK 1,262m (717),due to lower timber costs, SCA divests Wood Supply UK woodchip costs and recovered fiber costs. The largest share of During the fourth quarter, SCA divested Wood Supply UK, which the cost base comprises sourced timber, woodchips and recov- manufactures and distributes wood and wood-based products ered fiber (16%), other raw materials and consumables (11%), for the building materials trade in the UK. SCA will retain its orga- personnel costs (21%) and transportation and distribution costs nization for the sale of solid-wood products to industrial cus- (25%). tomer in the UK. The sale is expected to reduce the SCA Group’s net sales by about SEK 1,400m per year and EBITDA by approxi- Research and development (R&D) costs during the year mately SEK 25m per year. Net debt decreased by about SEK amounted to SEK 42m (41), corresponding to 0.2% of consoli- 150m due to the transaction. dated net sales. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Forest survey Cost structure 20201) Increase in standing volume in new forest survey SCA performed a new forest survey in 2019. According to the Timber, woodchips and 16% 2) new survey, SCA’s standing volume in Sweden was estimated at recovered fiber 252 million m3fo as of December 31, 2019, of which 249 million Other raw materials and 11% m3fo is in Sweden and 3 million m3fo is in the Baltic states, an consumables increase of 11 million m3fo compared with the previous inventory. Goods purchased for resale 9% Personnel costs 21% The annual net growth in SCA’s Swedish forest holding amounts to approximately 10.5 million m3fo, according to the new survey. This Transport and distribution 26% is 1 million m3fo higher than the estimate in the previous survey. Energy 5% SCA’s total standing volume amounted to 257 million m3fo as of Other operating expenses 12% December 31, 2020, of which 5 million m3fo is in the Baltic states. 1) Excluding the effect of one-off items related to the discontinuation of publica- Higher growth enables increased harvesting tion paper operations. Higher growth gives greater long-term harvesting potential and 2) Timber, woodchips and recovered fiber also includes the change in inventories means an increase in the contribution made by SCA’s forests to and the change in value of biological assets. reducing the adverse effects of climate change. Based on the new forest survey a new harvesting calculation was conducted at the beginning of 2020, and according to this the planned annual harvesting can gradually increase from the previous 4.3 million m3sub in 2020 to about 5.4 million m3sub in 2025. The new harvesting plan also contributes to a gradual increase in long-term cash flow with full effect from 2025, when the increased harvesting level is expected to give a positive impact on cash flow of SEK 300–400m per year.
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Board of Directors’ Report
Performance Condensed consolidated income statement EBITDA decreased to SEK 3,393m (21,361), mainly related to two Compar- material one-off items, a negative earnings impact from the dis- SEKm 2020 20201) 2019 20192) ison %3) continuation of publication paper operations of SEK –1,047m and Net sales 18,410 18,410 19,591 19,591 –6 a positive earnings impact of approximately SEK 16bn from the changed accounting method for valuation of forest assets in 2019. Other operating income 1,620 1,620 2,191 2,191 –26 Operating expenses –16,637 –15,590 –421 –16,463 –5 EBITDA, adjusted for the one-off items above, amounted to SEK 4,440m (5,319), corresponding to an EBITDA margin of EBITDA 3,393 4,440 21,361 5,319 –17 24.1% (27.2). The decline was primarily due to lower selling prices Depreciation –2,248 –1,601 –1,696 –1,616 –1 in all segments and lower delivery volumes for publication paper, Operating profit 1,145 2,839 19,665 3,703 –23 which was offset by higher delivery volumes of mainly pulp, Financial items –117 –117 –126 –126 a higher share of harvesting from SCA-owned forest, higher Profit before tax 1,028 2,722 19,539 3,577 –24 earnings from the revaluation of biological assets and lower Taxes –261 –483 –4,017 –730 raw material costs. Profit for the period 767 2,239 15,522 2,847 –21 Depreciation, amortization and impairment amounted to SEK 2,248m (1,696). Impairment of non-current assets related to the Key figures discontinuation of publication paper operations amounted to EBITDA margin, % 18.4 24.1 109.0 27.2
SEK 647m. Earnings per share 1.09 3.19 22.10 4.05 2020 REPORT SUSTAINABILITY AND ANNUAL SCA 1) Excluding the effect of one-off items related to the discontinuation of publica- Operating profit adjusted for one-off items relating to the tion paper operations. discontinuation of publication paper operations, amounted to 2) Excluding the impact of the changed accounting method for the valuation of forest assets. SEK 2,839m (3,703). 3) Comparison excluding the effect of one-off items related to the discontinuation of publication paper operations in 2020 and the effect of changed accounting Financial items amounted to SEK –117m (–126). method for the valuation of forest assets in 2019.
The Group’s tax amounted to SEK 261m (4,017). One-off items related to the discontinuation of publication paper operations Reasons for changes in EBITDA (%) resulted in a reduction in the provision for deferred tax of SEK in 2020 compared with 20191) 223m. The changed accounting method for the valuation of 2020 forest assets resulted in an increased provision for deferred tax Price/mix, % –34 of approximately SEK 3bn in 2019. Volume, % 1 Raw material costs, % 21 Earnings per share amounted to SEK 1.09 (22.10) Excluding the Energy costs, % –2 effect of one-off items related to the discontinuation of publica- Currency, % 4 tion paper operations and changed accounting method for the Other, % –7 valuation of forest assets, earnings per share amounted to SEK 3.19 (4.05). Total, % –17 1) Excluding the effect of one-off items related to the discontinuation of publica- tion paper operations in 2020 and the effect of changed accounting method for the valuation of forest assets in 2019.
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Board of Directors’ Report
Credit structure and available credit facilities Maturity years Committed credit amount, SEKm1) Dec 31, 2020 2021 2022 2023 2024 2025 2026+ Syndicated credit facilities2) 7,000 5,000 2,000 Bilateral credit facilities 2,2593) 1,918 Commercial paper Bond issues (MTN) 3,700 1,200 1,300 1,200 Bilateral loans 5,346 660 825 846 826 2,190 Total 18,305 1,200 660 2,743 5,846 4,126 3,390 1) Whereof drawn loans amounted to SEK 9,046m 2) All syndicated credit facilities are unutilized 3) Undrawn portion amounted to SEK 1,918m
Cash flow Financial position The operating cash surplus amounted to SEK 2,792m (4,382). SCA’s capital employed totaled SEK 79,834m (77,107) as of The cash flow effect of changes in working capital was SEK December 31, 2020, an increase during the year of SEK 2,727m. 1,131m (–186). Current capital expenditures, net, totaled SEK –1,224m (–1,132). Operating cash flow was SEK 2,688m (2,922). SCA’s net debt totaled SEK 7,671m (8,597) as of December 31, 2020, a decrease of SEK 926m. The Net debt to EBITDA ratio Strategic capital expenditures during the year mainly relate to the was 1.7 (1.6) and the debt to equity ratio was 10.6% (12.5). expansion of Obbola and amounted to SEK –1,414m (–1,256). The cash flow effect of acquisitions amounted to SEK –462m At December 31, 2020, gross debt amounted to SEK 10,354m, (–1,115) and primarily related to the acquisition of forest land in with an average maturity of 4.5 years (including the lease the Baltic states. The cash flow effect of the divestments was liability). The loan structure consists of bonds and bilateral bank SEK 63m (370). Paid tax amounted to SEK –35m (–652). loans. The lease liability amounted to SEK 751m. Unutilized credit facilities amounted to SEK 8,918m. Cash and cash equiva- Operating cash flow statement lents amounted to SEK 1,273m at the end of the period. SEKm 2020 2019 Balance sheet structure Operating cash surplus 2,792 4,382 Change in working capital 1,131 –186 SEKm Dec 31, 2020 Dec 31, 2019 Current capital expenditures, net –1,224 –1,132 Forest assets 74,900 69,682 Other operating cash flow –11 –142 Deferred tax liabilities related to growing forest –14,977 –13,977 Operating cash flow 2,688 2,922 Working capital 2,759 3,748 Other capital employed, net 17,152 17,654 Financial items –117 –126
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Total capital employed 79,834 77,107 Paid tax –35 –652 Other 0 2 Net debt 7,671 8,597 Cash flow from current operations 2,536 2,146 Net debt/EBITDA 1.7x 1.6x
Company and asset acquisitions –462 –1,115 Equity 72,163 68,510 Divestments 63 370 Net debt/Equity, % 10.6 12.5 Strategic capital expenditures in non-current assets –1,414 –1,256 Cash flow before dividend 723 145
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Board of Directors’ Report
Other Group information Environmental impact in Sweden In 2020, SCA operated 12 manufacturing sites for which a permit Parent Company is required in Sweden. The value of deliveries from operations for The purpose of the Group’s Parent Company, Svenska Cellulosa which permits are required accounted for more than 90% of con- Aktiebolaget SCA (publ), is to own and manage shares in a solidated net sales in 2020. Four permits relate to the manufac- number of subsidiaries and perform Group-wide management ture of pulp and paper. These operations impact the environment and administrative functions. The Parent Company also owns a through emissions to air and water, solid waste and noise. Seven large share of the company’s forest assets. The company is a permits relate to the production of solid-wood and processed Swedish limited liability company domiciled in Sundsvall with the wood products, and biofuels and one permit pertains to the corporate registration number 556012-6293. manufacture of fuel pellets. These operations impact the envi- ronment through emissions to air and water, and noise. In 2020, operating income amounted to SEK 273m (235) and profit before tax amounted to SEK –120m (–4). For more informa- Guidelines for remuneration of senior executives tion, refer to pages 126–134. The 2020 AGM decided on the guidelines for determining sala- ries and other remuneration for senior executives. The guidelines Holdings of treasury shares apply until the 2024 AGM, unless material changes are imple- SCA holds no treasury shares. mented prior to that date.
Distribution of shares SCA’s current guidelines for the remuneration to senior execu- The total number of shares as per December 31, 2020, amounted tives are described in Note C3. Information about the application 2020 REPORT SUSTAINABILITY AND ANNUAL SCA to 702,342,489, of which 64,587,672 Class A shares and of the current guidelines and the costs for the remuneration to 637,754,817 Class B shares. No change was made to the number senior executives is also described in Note C3 and in SCA’s of Class A and Class B shares during the year. remuneration report, which is available on www.sca.com.
Dividend The Board of Directors proposes a dividend of SEK 2.00 per share or SEK 1,405m. The record date for entitlement to receive dividends is proposed as April 19, 2021.
SCA’s sustainability reporting in accordance with the Annual Accounts Act
Sustainability work is integrated into Group’s primary steering document and The strategic priorities for sustainability SCA’s operations, making it natural to sets, together with the Group’s Sustain- work, where SCA’s value chain can be allow sustainability reporting, in accor- ability Policy, the basis of SCA’s sustain- affected, how the areas are material for dance with the Swedish Annual Accounts ability agenda. Follow-up and evaluation SCA’s stakeholders, how they are gov- Act Chapter 6, Section 11, to be part of a of these policies complies with SCA’s pro- erned and the most important result indi- combined Annual Report and Sustain- cedures for internal control and audits, as cators are described in the sustainability ability Report 2020. This report relates to described in the Corporate Governance facts, refer to the table on pages 138–139. Svenska Cellulosa Aktiebolaget SCA Report on pages 71–77. In addition, SCA’s The table also shows how social condi- (publ) and its subsidiaries (refer to Note F1 sustainability targets and priorities are tions, personnel issues, the environment, on page 122). The SCA Group, its opera- also monitored through the Group’s Sus- human rights and anti-corruption form tions and business model are described in tainability Council. part of SCA’s sustainability agenda. the Board of Directors’ Report on page 60. The Sustainability Report was sub- The management of material risks in the In addition to the information above, mitted to the auditor at the same time as sustainability area constitutes part of the SCA’s sustainability work and the out- the Annual Report. Group’s overall work with identifying and come of this work is described in the Sus- handling risks. This process, identified tainability facts section, pages 135–162 Governance of the sustainability agenda risks and managing these risks are and divided by area in the Swedish Annual is described in the Corporate Governance described in the Board of Directors’ Accounts Act according to the table Report and in the Sustainability facts sec- Report. below: tion. SCA’s Code of Conduct is the
Social conditions Area General and employees Environment Human rights Anti-corruption Business model 8–9, 12–13 Policies and results 141, 138–139 156–159 145, 148–149, 151–155, 144–146 145–146 160–161 Risks and risk management 66–70 68–69 67–69 67–69 67–69 Targets and outcomes 137, 139, 170–171 139, 145, 159 139, 145, 160–161 139, 146 139, 145–146
65 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Risks and risk management Risks and risk management
SCA is exposed to a number of risks. These risks pertain to of SCA’s operational risks are managed by SCA’s business areas at factors or events that may impact SCA’s brand and ability to be the local level, but that the handling is coordinated when deemed a credible and sustainable company with good profitability over necessary. The tools for this work primarily comprise continuous time. Through effective risk management, SCA is proactive in reporting by the business areas and the annual strategy process, minimizing the risk and in reducing the negative effects should where identifying, evaluating and managing risks are a part of the identified factors or events occur. process. Identified risks are classified according to the likelihood of the risk occurring and the impact on SCA’s performance. Approved Many of the factors or events described could have a positive or control measures are followed up and assessed within the frame- negative impact on the Group. Examples include “Demand and work of the company’s internal control. market price for SCA’s products” and “Raw material prices”. SCA’s financial risk management is centralized, as is the corpo- SCA has chosen not to describe the coronavirus pandemic as a rate internal bank for handling the Group companies’ financial specific risk but instead has taken this into account in each risk transactions and management of the Group’s energy risks. The assessment. In 2020, there has been limited impact on produc- financial risks are managed in accordance with the Group’s tion and deliveries of SCA’s products. There remains great Financial Policy, which is set by SCA’s Board. Together with the uncertainty and the pandemic may impact SCA in 2021. company’s Instructions for energy trading, this provides a frame- work for management activities. Processes for risk management SCA has a corporate Internal Audit function. The Internal Audit SCA’s Board determines the Group’s strategic direction after ensures that SCA’s organization complies with policies and other recommendations from Executive Management. Responsibility for governing documents, and that the organization takes measures the long-term, overall management of risks corresponds with the to manage identified risks. The Internal Audit function reports to company’s decision and delegation scheme. This implies that most the Board of Directors through its Audit Committee.
An assessment of the potential impact on SCA based on a combination of likelihood and financial impact. Operational risks Low Medium High
Description of risk Management and comments for the year
Demand and market price for SCA’s For most of the product areas where SCA operates, there are a number of competing producers and products distinct market prices. Supply is determined by the available production capacity at SCA and its com- petitors. Market price is determined at any time based on supply and demand. Sales contracts for SCA’s Demand for SCA’s products is influenced by a products may reflect that SCA’s price is a form of market price on the basis of, for example, published SCA ANNUAL AND SUSTAINABILITY REPORT 2020 variety of factors, such as the general economic price indexes, though sometimes with a certain time lag compared with the development of the market. trend, and also by more specific trends, such as Sales contracts can also state a specific price, which normally is for an open-ended period. Variations in trends in construction and in the building materials market prices can cause significant fluctuations in profit for SCA. trade, as well as an increase in e-commerce. Other Several methods can be applied to address the risk of a fluctuating market price. Long-term contracts products and services can substitute SCA’s prod- at fixed prices or price hedging only occur in exceptional cases. To offset the impact of price move- ucts at the same time as SCA’s products can replace ments, at least in cases where these are negative and are expected to be long-term, measures can be other products and materials. SCA is benefiting from taken to adapt the cost scenario, for example, by renegotiating purchasing agreements, implementing the substantial need to replace fossil materials with personnel or capacity reductions, and reviewing the business structure. A transition to alternative pro- renewable alternatives. duction can also be considered where this is possible. Impact: The company’s innovation efforts aim to develop new products and process solutions that enhance competitiveness.
Raw material prices and other costs for The risk of price movements related to input goods and services and the impact of this variation on input goods and services earnings can be managed in several ways. SCA’s integrated value chain ensures that the raw material flows are integrated from forest raw materials to the finished forest products. This integration entails, in The market price fluctuates over time for many of the itself, risk reduction. SCA’s large forest holding also entails a risk reduction. In 2020, 52% of SCA’s wood input goods and services used in the manufacture of raw material requirements were sourced from its own forests and chips from its own sawmills. SCA’s products. This could have a positive or nega- Another method used to manage the price risk is by entering financial hedges and long-term con- tive impact on earnings. 79% of SCA’s cost base of tracts. SCA is an energy-intensive company and can, according to internal rules, hedge the electricity SEK 15,590m is made up of raw materials, energy price risk for up to 36 months. Electricity price hedging is effected through financial instruments and and other input goods and services, including distri- fixed pricing in supply agreements. In 2020, SCA’s net purchases of electricity totaled 1.6 TWh (1.8). In bution services. SCA’s cost structure is described in 2021, the Group will significantly reduce its net exposure with the discontinuation of publication paper the Board of Directors’ Report. operations. For 2021, 130% of forecast electricity purchases have been hedged, and for 2022, 60%. No Impact: hedging has been carried out for 2023. Under normal circumstances, no other price risks in input goods are hedged except for electricity. Other alternatives to manage variations in costs include renegotiating contracts, looking for new suppliers or replacing input goods and services where prices have risen with other products and services that fulfill the same function. Transport expenses account for a large share of SCA’s cost base. Use of our own logistics operations enables the system to be optimized and risks minimized. Most sales are to markets with good logistics solutions and with the same cost scenario as our competitors, meaning there is no structural disadvantage.
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Risks and risk management
Description of risk Management and comments for the year
Environmental impact SCA’s Sustainability Policy details guidelines for the Group’s actions in the areas of environmental and social responsibility. In addition to this, targets for people and nature are an integrated part of SCA’s SCA’s operations have an impact on air, water, land, business strategy. Environmental risks are minimized through preventive work in the form of certified noise levels and biological processes. These effects environmental management systems, control programs for compliance with environmental permits and could lead to costs to prevent or limit the impact on risk analyses in conjunction with acquisitions, and remediation projects in connection with plant clo- the environment or costs to restore environments sures. Through its Resource Management System (RMS), SCA monitors how the company utilizes affected by SCA’s operations. Demands for restoring energy, water, transport activities and raw materials. The data is used for internal control and follow-up the environment may also relate to the impact of of established targets. All employees are encouraged to report observations and incidents, which are SCA’s previous, now discontinued operations. then used in efforts to achieve continuous improvements. SCA is also engaged in continuous efforts to SCA’s industrial operations in Sweden require increase the proportion of renewable energy and biofuels and to reduce the volume of production a permit in accordance with the Swedish Environ- waste. A description of SCA’s work and governance in this area is provided in the Sustainability facts mental Code, which also generally affect SCA’s section. operations. Permits granted stipulate limits for the scope of operations and the permitted impact on surroundings. Any expansion or changes to opera- tions may require further action. Forest operations are also impacted by the Swedish Forestry Act and the Land Acquisition Act.
Impact:
Climate change SCA’s forests are managed to minimize the risk of damage from insects, fire or storms. SCA strives to 2020 REPORT SUSTAINABILITY AND ANNUAL SCA make continuous improvements together with researchers to develop forestry methods and seedling Climate change entails risk to SCA’s operations. material. Good planning and flexibility is required to reduce the impact of changing driving conditions Changes to weather conditions could lead to arising from shorter winters and more rainfall. The company’s large and geographically dispersed forest drought, which in turn could lead to increased insect holding increases the opportunity for flexible harvesting and decreases risk. damage or fires. More storms increase the risk of SCA’s plants are located in areas with a plentiful supply of water from sources considered robust. The storm damage. Timber harvesting and transporta- company’s facilities reuse most of the fresh water delivered and focus on reducing emissions to water. tion could be impacted by a milder climate with more SCA’s large forest holding has a significant positive climate impact through its net uptake of CO . rain creating difficult terrain, particularly in the 2 Good forest management creates vigorous and flourishing forests, with greater resistance to climate- spring. Political decisions taken to reduce climate related damage than older, unmanaged forests. The forest also guarantees access to renewable forest impact may affect the company in various ways. raw materials. SCA works proactively to decrease its carbon footprint in its own value chain by reducing A changing climate could affect biodiversity in the energy consumption, emissions of greenhouse gases, through transport optimization and by offering company’s forests as living conditions for various renewable products with low climate impact. species are altered. Access to fresh water may be It is difficult to predict how different species in the forest stands will be impacted by climate change. adversely impacted by a warmer climate. SCA is taking part in projects and monitoring developments in the area and will, whenever necessary, At the same time, climate change in the form of adapt its forest operations and its nature conservation measures. global warming is, to a certain extent, expected to have a positive impact by creating a more favorable climate for forest growth in Northern Sweden. To counteract climate change, demand is increasing for renewable and fossil-free alternatives, which favors SCA.
Impact:
Business ethics To ensure that SCA lives up to the company’s core values and is not involved in or linked to unethical business practices, SCA has an established Code of Conduct. This includes general rules for how SCA Unethical behavior or poor management of risk conducts its business and how the company’s employees are to act toward each other and in business linked to business ethics can damage the company’s relationships. The Code is reviewed each year to ensure it remains relevant. The Code includes princi- brand and reputation in the market. SCA may also ples on business ethics, relationships to employees and respect for human rights and the environment. suffer fines and other legal sanctions. Through good All employees are educated in the Code as part of the introduction for new employees and through business ethics, the company can contribute to a refresher courses. To ensure that SCA works with business partners that share these values, potential positive development across the value chain and partners are evaluated before cooperation is initiated. The evaluation comprises both business issues minimize the risk of corruption. and issues concerning existing policies and processes regarding, for example, the work environment Impact: and business ethics. Suppliers are expected to comply with SCA’s Code of Conduct and Supplier Stan- dard, which is regulated in supplier agreements. SCA uses a number of methods to monitor and safe- guard the implementation of the Code of Conduct. These include checks in connection with acquisi- tions, risk evaluation of the company’s own units and suppliers, and regular on-site audits of SCA’s units and of suppliers deemed to have a higher risk level. Employees are encouraged to report violations. A whistleblower system is in place and suspected violations are handled by the company’s Compliance Council.
Legal risks SCA monitors legal developments in relevant areas to ensure regulatory compliance. The company takes the measures required to comply with regulatory changes and provides SCA employees with rele- SCA conducts operations covered by laws and rules vant training. SCA is also a member of trade associations to safeguard the company’s interests on legal and regulations, much of which requires permits. issues. SCA’s facilities continuously monitor their environmental impact and compliance with permits SCA may be subject to commercial disputes and issued. other legal procedures.
Impact:
67 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Risks and risk management
Description of risk Management and comments for the year
Reputational risk SCA performs training sessions to ensure that knowledge about regulations is transferred to SCA’s employees and works to ensure that co-owned operations and staff in these companies comply with Events may occur that damage SCA’s reputation. similar requirements. This could, for example, concern an employee, SCA has a Global Supplier Standard to ensure that SCA’s suppliers and contractors adhere to the contractor or other supplier who fails to comply with requirements imposed by SCA. SCA has systems in place to handle sudden events, such as accidents, laws and regulations or policy documents, such as that risk damaging confidence in SCA. The company has a procedure to ensure that new partners share SCA’s Code of Conduct. SCA could also be affected SCA’s values before initiating a business collaboration. Whenever necessary, audits are conducted by accidents that damage the reputation of SCA and on-site to monitor that SCA’s performance levels are met. SCA regularly updates information on the its ability to conduct the business in a safe and effi- company’s website to satisfy the needs of different stakeholders. cient manner.
Impact:
Risks linked to the forest portfolio SCA works proactively to improve forestry methods and seedlings to enhance forest growth. Active forest operations combined with an industry that adds value to the forest raw material is essential to SCA is Europe’s largest private forest owner, with 2.6 secure the value of the forest asset. Since 1950, the sustainable harvesting level has more than doubled million hectares of forest land, of which 2 million at the same time as the standing volume has increased by about 70%. The risk of infestation by pests is hectares is productive forest land. There is a risk that managed through diligent site preparation and special protection against pine weevils and spruce bark the value of the forest portfolio decreases through beetles. The stock of grazing moose is managed through hunting on land where SCA issues hunting infestation by pests, grazing moose, storms or fire. licenses. SCA’s forest land is spread across large areas of Northern Sweden, which means forest fires The value can also change through variations in and storms can usually only impact a minor part of the forest portfolio. The forest is therefore not demand for wood raw material in SCA’s region, insured. SCA consults the relevant Sami communities in connection with forestry operations and wind which in turn would impact price levels in the region. power projects on SCA’s land. The consultation pertains to the adaptation of forest management activi- SCA’s forest management may conflict with the ties, including the scheduling of harvest operations (time), the use of fertilizers and the selection of soil activities of reindeer herding Sami pertaining to land preparation method and tree species when planting new forest. For wind power projects, consultation use. This may also be the case for land leased out for may be carried out concerning the size of the wind farm, its impact on reindeer herding and impact on wind power projects. Sami communities. Impact:
Biodiversity SCA’s objective is to manage the company’s forest to make it at least as rich in biodiversity, nature experiences and raw material in the future as it is today. SCA is pursuing long-term and responsible SCA uses large quantities of forest raw material forest management where biodiversity conservation measures are integrated in all forest operations. which is partly from its own forest and partly from SCA strives to preserve and strengthen biodiversity in several ways. SCA makes voluntary set-asides other landowners. All harvesting and replanting where the company’s forests with the highest conservation values are set aside from forest manage- involves a risk of impacting biodiversity. ment. Biodiversity conservation measures also include on-site retention in all forest operations, alterna- Impact: tive harvesting methods for continuous tree cover, and targeted action, such as wetland restoration. SCA’s forestry management and timber procurement is certified under FSC and PEFC in Sweden and the Baltic states. SCA actively refrains from purchasing timber from controversial sources. As a minimum requirement, the timber must comply with FSC’s Controlled Wood Standard.
Risks at production plants SCA has a vision of zero workplace accidents and is actively and systematically running a health and safety program to minimize the risk of personal injury and ill health. SCA is proactive in preventing acci- SCA has 16 production facilities, primarily in Sweden dents and when they happen, minimizing the effect. The aim is to effectively and cost efficiently protect but with some manufacturing in the UK. SCA also the employees, local residents, the environment, the company’s assets and the business, and to mini- SCA ANNUAL AND SUSTAINABILITY REPORT 2020 owns facilities for distribution, such as port facilities, mize SCA’s risk management costs. The loss-prevention work is conducted in accordance with estab- timber terminals and forest roads in Sweden. Poor lished guidelines that include inspections and benchmarking with other plants, within and outside SCA. health and safety practices at the production facili- Other important elements of loss-prevention activities include maintenance of plants, staff training, ties may cause ill health or a workplace accident with good orderliness, and documentation. Production facilities work continuously to reduce their risks by substantial consequences for individual employees. using, for example, risk assessments and continuous improvements. All wholly owned plants are Some of the facilities conduct continuous produc- insured with market-leading insurance companies to replacement cost and for the loss of contribution tion. Fires, machinery breakdowns and other types margin. In order to minimize the impact of ongoing projects on operations, separate project organiza- of harmful incidents could damage the plant in ques- tions are created to work together with any existing operations on site to conduct regular follow-ups that tion and also cause delivery problems. When major quickly identify any disruption and take corrective action. projects are undertaken, there is a risk of disruption in the existing operations.
Impact:
68 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Risks and risk management
Description of risk Management and comments for the year
Impact of political decisions SCA is working to monitor and evaluate changes in its surroundings, amended legislation and political decisions that lead to a change in circumstances for the company. SCA is also a member of national and SCA’s operations are influenced by political deci- international trade associations. A few key areas for SCA include the ownership and right to the use of sions and administrative rules, primarily in Sweden forest land, European and global legislation in the field of energy and the environment, requirements for where SCA has much of its business, but also at EU the use of biofuel and the use of recovered fiber. SCA monitors developments in prioritized areas, such level. This influence could be from general regula- as resource consumption in general and, more specifically, regarding issues relating to waste and tions, such as rules covering taxation and financial emissions to water and air. It is important for SCA to monitor EU emission rights trading, regulations reporting, but also by more specific regulations and concerning waste and circular economy initiatives. practices. Examples include when SCA applies for a Even after the UK’s exit from the EU, the country will still need to import wood products, pulp and permit for activities covered by the Environmental paper. There are no expectations today of material changes in UK import duties or similar restrictions on Code and political decisions concerning transporta- SCA’s products. Assuming a strong UK economy and stable exchange rates, SCA expects to maintain a tion and forest operations. Political decisions may significant volume of sales in the UK. restrict future harvesting levels. One particularly important individual political decision is the UK’s exit from the EU. The UK is one of SCA’s most important markets and accounts for about 19% of SCA’s net sales.
Impact:
Customer dependency SCA works continuously in building relations with new customers to reduce the consequences of lost sales from established customers. Generally, customers in the pulp and paper segments are major 2020 REPORT SUSTAINABILITY AND ANNUAL SCA In 2020, SCA’s ten largest customers accounted for companies, such as tissue manufacturers and corrugated board manufacturers. Within the Wood busi- about 31% of SCA’s net sales. The risk of too great a ness area, SCA has developed completely new customer segments over the years. Traditionally, solid- dependency on an individual customer is that lost wood products are distributed by general wholesalers. SCA has now built up business relationships sales from an individual customer could have a with distributors in the building materials trade, which are more focused on distribution to consumers, negative impact on SCA’s earnings. including the DIY segment. For this category, SCA often distributes the products directly to each Impact: customer’s store. In addition, certain construction components are manufactured for sale directly to the industry.
Suppliers To reduce this risk, SCA has supply contracts with multiple suppliers. For timber supplies that are not covered by harvesting in the company’s own forests, SCA has built up a sourcing organization with SCA is dependent on a large number of suppliers. about 80 timber purchasers, distributed between local offices across the region. Through this organiza- The loss of key suppliers could result in costs for tion, SCA has relationships with approximately 18,000 private forest owners in the region. SCA may also SCA and problems in manufacturing. Suppliers that sell silvicultural services to these forest owners. About 120 contractors are responsible for most of the fail to comply with SCA’s Supplier Standard could harvesting, about 100 for transportation to SCA’s industries and around another 70 are responsible for also cause problems for SCA. Pandemics and other forest management. global or regional crises may have a negative impact For most important input goods and services, there are a number of suppliers available in the market. on the supplier’s production capacity and on the This is also often the case for suppliers of maintenance and building services for facilities. As SCA has mobility of products and services. access to several suppliers, it has reduced the risk of non-delivery resulting from delivery problems at Impact: an individual supplier. An SCA Supplier Standard has been established that, for example, addresses working conditions, health and safety and business ethics. SCA’s suppliers must agree to follow the standard and may be required to undergo an audit. The audits are planned and carried out from a risk perspective to ensure that deliveries are from suppliers that fulfill SCA’s requirements.
IT security and IT risks SCA has established a management model for IT that includes governance, standardized IT processes and an organization for IT security. The IT security work includes a continuous risk assessment, the SCA relies on IT systems in its day-to-day opera- introduction of preventive measures and use of security technology. Standardized processes are in tions. Disruptions or faults in critical systems have a place for the implementation of new systems, changes to existing systems and daily operations. The direct impact on production and important business majority of SCA’s system landscape is based on well-established systems. Work has been carried out to processes. Errors in the handling of financial sys- adapt and develop the company’s approach to the General Data Protection Regulation (GDPR). tems can affect the company’s reporting. Unautho- rized intrusion into SCA’s systems may result in financial losses and other damage. These risks grow in an increasingly technically complex and inter- linked world.
Impact:
Employee-related risks SCA works in a structured manner to ensure the health and well-being of its employees through proac- tive preventative healthcare activities. SCA strives for healthy and accident-free workplaces and has SCA needs access to skilled and dedicated established a number of procedures to this end. employees. The company must therefore have an SCA has an established succession planning to ensure a supply of managers and runs training ability to attract and retain new talent and safeguard courses to strengthen and develop managers. SCA works with strategic skills supply to secure access the availability of competent managers to achieve to employees with the right expertise at the right time. Employee skills are developed through training, established strategic and operational objectives. coaching and annual performance reviews. The company uses targeted initiatives to attract critical Impact: expertise and to strengthen the employer brand. Salaries and other conditions are to be adapted to the market and linked to SCA’s business priorities. SCA strives to maintain good relationships with union organizations.
69 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Risks and risk management
An assessment of the potential impact on SCA based on a combination of likelihood and financial impact. Financial risks Low Medium High
Description of risk Management and comments for the year
Currency The table shows the net exposure for the three Net exposure 2020 largest currencies in 2020, and the total of other SCA’s focus on exports makes SCA’s operations EUR EUR 437m foreign currencies, measured as sales in each highly dependent on currency. About 85% of sales foreign currency less purchases in the same currency. USD USD 929m are conducted in currencies other than SEK. Most In accordance with SCA’s Financial Policy, this purchasing is conducted in SEK. Only a minor share GBP GBP 121m exposure is hedged as follows: of purchasing is carried out in other currencies. Fluc- Others (translated to SEK) SEK 623m All balance-sheet items in foreign currency are tuations in currency rates have a substantial impact hedged, as is exposure in major approved and Total SEK 15,184m on SCA’s revenue and thereby on earnings. contracted investments in non-current assets. Impact: According to the policy, transaction exposure regarding expected future net flows may also be hedged for up to 18 months. The company has hedged about 60% of the expected EUR net exposure from sales minus purchases until the end of the second quarter of 2021, as well as approximately 30% for the third quarter of 2021 and 10% for the fourth quarter 2021, at the average EUR/SEK exchange rate of 10.53. The company has hedged about 60% of the expected USD net exposure from sales minus purchases until the end of the second quarter of 2021, as well as approximately 30% for the third quarter of 2021 and 10% for the fourth quarter 2021, at the average USD/SEK exchange rate of 9.23. Translation exposure, meaning the risk to which SCA is exposed when translating foreign subsid- iaries’ balance sheets and income statements to SEK, is less important to SCA as the total assets in these companies only amount to 3% of SCA’s total assets. Translation exposure in the foreign subsid- iaries is not currency-hedged.
Credit risk Credit exposure in accounts receivable amounted to SEK 1,964m as per December 31, 2020. Credit risk in accounts receivable is managed through credit checks of customers using credit rating compa- Credit risk refers to the risk of losses due to a failure nies. Credit limits are set and regularly monitored. Accounts receivable are recognized at the amount to meet payment obligations by SCA’s counterpar- that is expected to be received based on an individual assessment of each customer. The financial ties in financial agreements or by customers. credit exposure, in which the counterparty is a financial actor or a pension fund manager, amounted to Impact: SEK 3,072m as per December 31, 2020. This exposure includes credit risk of SEK 1,273m for cash and cash equivalents and credit exposure in derivative instruments amounting to SEK 322m. The objective is that financial counterparties must have a credit rating of at least A- from at least two credit rating institutes.
Liquidity and refinancing risk As of December 31, 2020, SCA’s gross debt amounted to SEK 10,354m and the average duration, including unutilized credit facilities, to 4.5 years (taking into account lease liability in accordance with Liquidity and refinancing risk is the risk that SCA is IFRS 16). Unutilized credit facilities amounted to approximately SEK 8,918m at the end of the year, and unable to meet its payment obligations as a result of cash and cash equivalents to SEK 1,273m. To ensure good access to loan financing at attractive terms, insufficient liquidity or difficulty in raising new loans. SCA has a clear objective to maintain an investment grade rating. During the year, the credit rating Impact: agency Standard and Poor’s (S&P) confirmed SCA’s credit rating of “BBB-” with a stable outlook. SCA is to maintain financial flexibility in the form of a liquidity reserve consisting of cash and cash equivalents and unutilized credit facilities totaling at least 10% of the Group’s annual sales. SCA limits its refinancing risk by having a good distribution in the maturity profile of its gross debt. The gross debt must have an average maturity in excess of three years, taking into account unutilized credit facilities.
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Surplus liquidity should primarily be used to amortize external liabilities. As of December 31, 2020, SCA’s financing mainly comprised credit facilities from a group of four banks with high credit ratings, bilateral loans and credit facilities from several banks and issued bonds.
Interest rate risks SCA’s policy is that the average fixed-rate period shall be within the interval 3–36 months. SCA’s average interest period for the gross debt, including derivatives and excluding lease liability in accor- Interest rate risk relates to the risk that movements in dance with IFRS 16, was about 27 months as of December 31, 2020. The risk is managed using the interest rates could have a negative impact on fixed-interest loans or through interest rate derivatives. A sensitivity analysis is presented in Note E7. SCA.
Impact:
70 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Corporate governance
Corporate governance
Corporate governance aims to ensure SCA’s commitments to all of its stake- holders, including shareholders. In addition, corporate governance supports the company’s long-term strategy, market presence and competitiveness.
Corporate governance, including remuneration, Risks and risk management, pages 66–70 pages 71–81 The processes to identify and manage risks in SCA are part of This section describes the rules and regulations and the the Group’s strategy work and are pursued at a local and Group- Group’s corporate governance, including a description of the wide level. The risk management section describes the most operational organization. It also details the Board of Directors’ significant risks as well as the governing documents and responsibilities and its work during the year as well as SCA’s measures that the Group applies to manage these. 2020 REPORT SUSTAINABILITY AND ANNUAL SCA internal control. Moreover, it provides an overview of remunera- tion and remuneration issues, see also SCA’s remuneration Sustainability, pages 48–57, 135–162 and 171 report, which is available on www.sca.com. SCA applies the SCA’s sustainability work is an integral part of the company’s Swedish Code of Corporate Governance without any deviations business model and operations. Work to improve the company’s (www.corporategovernanceboard.se). Corporate governance sustainability performance strengthens competitiveness, shall be reliable, clear, straightforward and business-oriented. reduces risks and costs and attracts talent and investors. This Corporate Governance Report forms part of the Board of The Board and the President bear the overall responsibility for Directors’ Report for SCA’s 2020 Annual Report in accordance the control of SCA’s business in the field of sustainability. SCA’s with Chapter 6, Section 6 of the Swedish Annual Accounts Act sustainability agenda is headed by the Group’s Sustainability (1995:1554). The report has been reviewed by the company’s Council, which includes members of the Executive Management auditor. and the Group’s Sustainability Director. The Sustainability Council is led by the Group’s CFO. In addition, a number of cross-functional networks manage and coordinate issues such as health, safety and environment.
Governance at SCA
Shareholder meeting/Annual General Meeting gies and targets, and decides on major investments, acquisitions The shareholders’ meeting is SCA’s highest decision-making and divestments of operations, among other matters. body, where all shareholders are entitled to attend to have a matter considered and to vote in respect of all shares held by the At the 2020 AGM, it was resolved that the Board of Directors shareholder. According to its Articles of Association, SCA has shall comprise ten members elected by the AGM with no depu- two listed classes of shares: Class A and Class B shares. Every ties. In addition, the Board shall include three employee repre- Class A share represents 10 votes and every Class B share rep- sentatives and three deputies. resents one vote. The Annual General Meeting (AGM) is the annual shareholders’ meeting at which the annual report is pre- SCA’s Articles of Association contain no provisions regarding sented. Among other matters, the company’s Board of Directors appointment or dismissal of Board members or amendments to and the Chairman of the Board are elected at the AGM. The AGM the Articles. also appoints the company’s auditors. Chairman of the Board Nomination Committee The Chairman of the Board leads the work of the Board and is The Nomination Committee represents the company’s share- responsible for ensuring that it is effectively organized and that holders and is charged with the task of preparing proposals for work is efficiently conducted. This includes continuously moni- adoption at the AGM with respect to election and remuneration toring the company’s operations in close dialogue with the Presi- matters and, in certain cases, proposing procedural motions for dent and CEO and ensuring that other Board members receive the next Nomination Committee. information that will enable high-quality discussion and deci- sions by the Board. The Chairman leads the assessment of the Board of Directors Board’s and the President’s work. The Chairman also represents The Board of Directors has the overall responsibility for the com- the company in ownership matters. pany’s organization and administration through regular moni- toring of the business and by ensuring the appropriateness of Audit Committee the organization and management team, and also compliance The company’s Board has, within itself, established an Audit with guidelines and internal control. The Board approves strate- Committee. The tasks of the Audit Committee include monitoring
71 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Corporate governance
financial reporting and the efficiency of the company’s internal Affairs, Communications and Strategic Development are also control, internal audit and risk management, and it submits members of the team. The working procedures for the Board of recommendations and proposals to ensure the reliability of Directors and terms of reference issued by the Board of Directors reporting. The Committee keeps itself informed on the audit, to the President and CEO detail, for example, the division of work reviews and monitors the impartiality and independence of the between the Board and President. In consultation with the auditor and submits recommendations to the Nomination Com- Chairman of the Board, the President and CEO prepares docu- mittee as a basis for the appointment of auditor and the determi- mentation and background information for the Board’s work. nation of remuneration, and information to the Board concerning the results of the audit in order to fulfill all requirements of the EU SCA adheres to the principle of distinct decentralization of Audit Regulation and Directive. The Audit Committee sets guide- responsibility and authority. The business areas are fully respon- lines for the procurement of services other than auditing services sible for developing their respective operations through estab- from the company’s auditors. Lastly, the Audit Committee evalu- lished objectives and strategies, a process that is also centrally ates the audit quality and informs the Nomination Committee of coordinated. Each business area is responsible for its operating the results of the evaluation. result, capital and cash flow. The position of the business and results are followed up by the entire Executive Management Remuneration Committee Team on a monthly basis. Each quarter, business review meet- The company’s Board has also, within itself, established a ings are conducted during which the management of each busi- Remuneration Committee. The Remuneration Committee pre- ness area personally meet with the President and CEO, the CFO pares the Board’s motions on issues relating to remuneration and others. These meetings function as a complement to the principles and remuneration and other terms and conditions of daily monitoring of operations. employment for the President and CEO, and is authorized to make decisions in these matters for the company’s other senior External auditors executives. The Committee monitors and assesses programs for The company’s auditor, elected at the Annual General Meeting, variable remuneration, the application of the AGM’s resolution on examines SCA’s accounting, the Group’s annual report and guidelines for remuneration of senior executives and the appli- sustainability report, the Board’s and President and CEO’s cable remuneration structure and remuneration levels in the administration and the annual reports of subsidiaries, and Group and prepares the Board’s remuneration report. submits an audit report.
Internal audit The audit is performed in accordance with the Swedish Compa- At SCA, it is the employees’ responsibility to ensure sound nies Act, the Swedish Annual Accounts Act, International Stan- governance and internal control in the operations or processes dards on Auditing (ISA) and generally accepted auditing princi- for which they are responsible. Internal audit is a separate ples in Sweden, which also includes a review of compliance with function with the task of evaluating and improving the efficiency the Swedish Companies Act and the Swedish Annual Accounts of SCA’s internal control, governance, and risk management. Act. The function reports to the Audit Committee and the Board in relation to internal audit matters. The function examines, among other, SCA’s internal processes for sales, purchases, financial reporting, assets, compensation and benefits, HR matters, infor- Read more about SCA’s Corporate Governance at mation security and IT systems, various projects and compliance www.sca.com. This includes: SCA ANNUAL AND SUSTAINABILITY REPORT 2020 with SCA’s policies and other governing documents including the • SCA’s Articles of Association Code of Conduct. • Link to the Swedish Corporate Governance Code • Information from previous Annual General Meetings since President and CEO and Executive Management 2015 (notices, minutes, President and CEO’s speeches) and press releases since 2012 SCA’s President and CEO is responsible for and manages the day- • Information from the Nomination Committee since 2006 to-day administration of the Group and follows the Board’s guide- (composition, proposals and work done) lines and instructions. The President and CEO is supported by the • Information ahead of the 2021 Annual General Meeting Executive Management Team, the work of which is led by the (notice, Nomination Committee proposals including the Audit President. The Executive Management Team comprises the Presi- Committee’s recommendation, Board proposal for principles dent and CEO, the CFO, the Presidents of the Business Areas for remuneration of senior executives, information on routines Forest, Paper, Pulp, Wood and Renewable Energy and the Presi- for notifying attendance to the Meeting, etc.) dent for the support unit Sourcing & Logistics. Further, the Senior • Earlier Corporate Governance Reports, since 2007 Vice Presidents of the Group functions Human Resources, Legal
Internal rules and regulations include: External rules and regulations include: Compliance with stock market • Articles of Association • The Swedish Companies Act regulations • Working procedures of the Board of • The Swedish Annual Accounts Act Directors • International Financial Reporting In 2020, SCA was not sanctioned by • Terms of reference issued by the Standards (IFRS) the Swedish Financial Supervisory Board to the President and CEO • Nordic Main Market Rulebook for Authority, the stock exchange’s disci- • Code of Conduct Issuers of Shares plinary board or any other authority or • Other policy documents established • Swedish Corporate Governance self-regulating body for violations of by the Board and instructions estab- Code the rules concerning the stock market. lished by the President and CEO • Relevant EU regulations
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Corporate governance
Activities during the year
Annual General Meeting In its work, the Nomination Committee has considered the rules The AGM was held on Tuesday, March 31, 2020 in Sundsvall. A that apply to the independence of Board members, as well as the total of 457 shareholders were represented at the Meeting, either requirement of diversity and breadth with the endeavor to personally or by proxy, representing approximately 65.3% of the achieve an even gender distribution and that the selection for votes in the company. Carl Svernlöv, Attorney-at-Law, was those nominated shall be based on expertise and experience elected Chairman of the Meeting. relevant to SCA.
The Meeting resolved that no dividend be paid for the 2019 fiscal When preparing its proposal for the election of auditors and year. The AGM decided on the re-election of Board members Pär remuneration, the Nomination Committee has also considered Boman, Charlotte Bengtsson, Lennart Evrell, Annemarie Gard- the Audit Committee's recommendation. shol, Ulf Larsson, Martin Lindqvist, Lotta Lyrå, Bert Nordberg, Anders Sundström and Barbara Milian Thoralfsson. Pär Boman Composition of the Nomination Committee for was re-elected as the Chairman of the Board. Ernst & Young was the 2021 AGM reelected as auditor for the period until the 2021 AGM. Moreover, The composition of the Nomination Committee for the 2021 AGM guidelines for determining the salary and other remuneration of is as follows: the President and CEO and other senior executives were • Helena Stjernholm, AB Industrivärden, Chairman of the Nomi- adopted; see Note C3. nation Committee 2020 REPORT SUSTAINABILITY AND ANNUAL SCA The minutes of the Meeting in full and information on the 2020 • Petter Johnsen, Norges Bank Investment Management AGM, including the President’s speech, are available at • Anders Oscarsson, AMF Insurance and Funds www.sca.com. • Mikael Hallåker, Handelsbanken Pension Foundation, among Nomination Committee others The 2017 AGM decided that the following procedure for • Pär Boman, Chairman of the Board, SCA appointing the Nomination Committee is to apply until further notice. The Nomination Committee is to comprise representa- Shareholders have had the opportunity to submit proposals to tives from the four largest shareholders in terms of voting rights the Nomination Committee. The Nomination Committee’s pro- as per the shareholders’ register maintained by the company on posal for the 2021 AGM is presented in the notice convening the the final banking day of August, as well as the Chairman of the AGM on SCA’s website www.sca.com. The 2021 AGM will be Board. The Chairman of the Board is to convene the first meeting held on April 15. of the Nomination Committee. The member representing the largest shareholder in terms of votes is to be appointed as The Nomination Committee was convened on five occasions in Chairman of the Nomination Committee. If necessary, due to 2020. The Chairman of the Board has presented the Board eval- subsequent ownership changes, the Nomination Committee is uation and provided the Nomination Committee with information entitled to call on one or two additional members from among regarding Board and committee work during the year. the next largest shareholders in terms of voting rights, so that the total number of members amounts to not more than seven. Diversity policy In the event that a member steps down from the Nomination When preparing proposals for the Board for the 2020 AGM, the Committee before the task is completed and the Nomination Nomination Committee has applied Item 4.1 of the Swedish Committee decides it would be beneficial for a replacement to Corporate Governance Code as its diversity policy. The policy be appointed, such a replacement is to be appointed by the aims to ensure that the Board has – with regards to the com same shareholder or, if this shareholder is no longer among the pany’s operations, stage of development and circumstances in largest shareholders in terms of voting rights, by the largest general – an appropriate composition characterized by diversity unrepresented shareholder in terms of voting rights. Changes and breadth as regards the AGM-elected members’ expertise, to the composition of the Nomination Committee are to be experience and background, with the endeavor to achieve an disclosed immediately. The composition of the Nomination even gender ratio. The 2020 AGM resolved in accordance with Committee is to be disclosed not later than six months prior to the Nomination Committee’s proposal, which meant ten mem- the AGM. No remuneration is to be paid to the members of the bers were elected, of which four were women and six men. Nomination Committee. Any expenses incurred during the work When preparing proposals for the Board for the 2021 AGM, the of the Nomination Committee are to be paid by the company. Nomination Committee has worked with and applied the diver- The mandate period of the Nomination Committee extends until sity policy in a corresponding manner, which resulted in the pro- the composition of the next Nomination Committee is disclosed. posal for the Board described in the notice convening the AGM. The Nomination Committee is to submit proposals relating to the Chairman of the General Meeting, the Board of Directors, the The Nomination Committee’s proposal entails the appointment Chairman of the Board, Board fees for the Chairman of the Board of ten Board members, of which four are women and six men. and each of the other Board members, including remuneration for committee work, the company’s auditors and auditors’ fees.
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Corporate governance
Board of Directors Evaluation of the Board’s work Ten Board members were appointed at the 2020 AGM. Lotta Lyrå The work of the Board, as that of the Chairman and the Presi- left the Board on June 5, 2020, after which the SCA Board had dent, is evaluated annually using a systematic and structured nine AGM-elected members. In addition to these members, there process. The purpose is to obtain a sound basis for the Board’s are three employee representatives and their three deputies. own development work and to provide the Nomination Com- mittee with relevant analysis for its nomination work. In 2020, the The SCA Board of Directors comprises the AGM-elected mem- evaluation took the form of a questionnaire and interviews held bers Pär Boman (Chairman), Charlotte Bengtsson, Lennart by an external consultant as well as group and individual discus- Evrell, Annemarie Gardshol, Ulf Larsson (President and CEO), sions between the Chairman of the Board and the members. The Martin Lindqvist, Bert Nordberg, Anders Sundström and Barbara evaluation covers such areas as the Board’s methods of work, Milian Thoralfsson. effectiveness, expertise and the year’s work. The Board was pro- vided with feedback after the results were compiled. The Nomi- The independence of Board members is presented in the table nation Committee was also informed of the results of the evalua- on page 75. SCA complies with the requirements of the Swedish tion. Code of Corporate Governance that stipulate that not more than one member elected by the AGM shall be a member of company Audit Committee management, that the majority of the members elected by the The Audit Committee comprises Barbara Milian Thoralfsson AGM shall be independent of the company and company man- (Chairman), Pär Boman and Martin Lindqvist. The Audit Com- agement, and that not fewer than two of these shall also be inde- mittee held six meetings in 2020. In its monitoring of the financial pendent of the company’s major shareholders. All of the AGM- reporting, the Committee dealt with relevant accounting issues, elected Board members have experience of the requirements internal auditors’ reviews, auditing work and a review of internal incumbent upon a listed company. control procedures and the measurement of the Group’s forest assets. The Audit Committee also prepared a recommendation The following three employee representatives were appointed to be used by the Nomination Committee when deciding on its to the Board for the period until the 2021 AGM: Roger Boström, proposal to the AGM regarding the election of auditors and Johanna Viklund Lindén and Hans Wentjärv and their deputies remuneration. Per Andersson, Maria Jonsson and Stefan Lundkvist. Since Hans Wentjärv passed away on May 30, 2020, he has been Remuneration Committee replaced by Per Andersson. Further information concerning the The Remuneration Committee comprises Pär Boman (Chairman), Board members can be found on pages 78–79. Bert Nordberg and Lennart Evrell. The Remuneration Committee held four meetings in 2020. Activities in 2020 mainly concerned Board activities remuneration and other employment terms and conditions for In 2020, the Board was convened 13 times. The Board has senior executives, and current remuneration structures and established working procedures. The working procedures remuneration levels in the Group. describe in detail which ordinary agenda items are to be addressed at the various Board meetings of the year. Recurring Internal audit agenda items are finances, the market situation, investments and SCA ANNUAL AND SUSTAINABILITY REPORT 2020 adoption of the financial statements. The Board also establishes The basis for the internal audit work is a risk-based annual plan. and evaluates the company’s overall objectives and strategy and The plan derives from a risk assessment process based on input decides on significant internal rules. Another task is to continu- from operations, management and the Board. The annual plan is ously monitor the internal control and compliance of the com- approved by the Audit Committee. In 2020, 12 internal audit pany and its employees with internal and external rules, and that assignments were performed. Observations from the assign- the company has well-functioning procedures for market disclo- ments are reported to the Audit Committee. During 2020, work sures. On a regular basis throughout the year, the Board also included follow-up of the organization’s work concerning the deals with reports from the Audit and Remuneration Committees effectiveness of internal controls and compliance with policies and reports on internal control and financial operations. The and other governing documents, including the Code of Conduct. company’s auditor regularly presents a report on the audit work and these issues are discussed by the Board.
In 2020, the Board conducted standard duties, including strategy issues.
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Corporate governance
External auditors autumn meeting, the auditor delivered a preliminary report on the The 2020 Annual General Meeting appointed accounting firm audit for the year. The working procedures specify a number of Ernst & Young AB as the company’s auditor for a mandate period mandatory issues that must be covered. These include matters of one year. The accounting firm notified the company that of importance that have been a cause for remark or discussion Fredrik Norrman, Authorized Public Accountant, would be the during the audit, business routines and transactions where dif- auditor in charge. The auditor owns no shares in SCA. ferences of opinion may exist regarding the choice of accounting procedures. The auditor shall also provide an account of consul- In accordance with its working procedures, the Board met with tancy work assigned to the audit firm by SCA and the audit firm’s the auditor at six scheduled Board meetings in 2020. The auditor independence in relation to the company and its management. also attended each meeting of the Audit Committee. At these On each occasion, Board members have had an opportunity to meetings, the auditor presented and received opinions on the ask the auditor questions. Certain parts of the detailed discus- focus and scope of the planned audit and delivered verbal audit sion on the accounts take place without representatives of com- and review reports. Further, at the Board’s third scheduled pany management being present.
Board of Directors and committees SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Depen- The Board of Atten- Audit Atten- Remuneration Atten- Names Elected dence Directors dance Committee dance Committee dance Pär Boman 2010 Chairman 13 Board member 6 Chairman 4 Charlotte Bengtsson 2017 Board member 13 Lennart Evrell 2017 Board member 13 Board member 4 Annemarie Gardshol 2015 Board member 12 Ulf Larsson 2017 Board member 13 Martin Lindqvist 2017 Board member 13 Board member 6 Lotta Lyrå* 2017 8 Bert Nordberg 2012 Board member 13 Board member 4 Anders Sundström 2018 Board member 13 Barbara Milian Thoralfsson 2006 Board member 13 Chairman 6 *Lotta Lyrå left the Board on June 5, 2020.
Dependent in relation to the company’s major shareholder – Industrivärden Dependent in relation to the company and corporate management – President of Skogforsk President and CEO of SCA – Dependent in relation to the company and corporate management
The largest shareholders As of December 31, 2020, AB Industrivärden was the company’s Number of meetings in 2020 largest shareholder, with a holding totaling 33,785,290 Class A The Board of Directors 13 shares and 38,300,000 Class B shares, corresponding to 10.3% Audit Committee 6 of the total number of shares and 29.3% of the total number of Remuneration Committee 4 votes in the company. No other shareholder in the company has a direct or indirect shareholding whose voting rights represent one-tenth or more of the total number of votes in the company.
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Remuneration, Executive Management Team and Board of Directors Guidelines Remuneration of the Board The 2020 Annual General Meeting adopted guidelines for remu- The total remuneration of the AGM-elected Board members is neration of senior executives. The total remuneration package presented in Note C4. comprises a fixed salary, variable salary, other benefits, and a pension. See Note C3. Remuneration report The Board has presented a separate remuneration report which Remuneration of the President and CEO and other is available on www.sca.com. senior executives Remuneration of the President and CEO and other senior execu- tives is presented in Note C3.
Variable remuneration and strategic targets Programs for variable remuneration are designed to support the Group’s strategic targets. The short-term program is individually adapted and based mainly on profit, cash flow and capital effi- ciency. The long-term program is based on the SCA share’s long-term total shareholder return compared with a weighted index of shares of other peer companies.
Internal control and financial reporting
The Board’s responsibility for internal governance and control is External financial reporting regulated in the Swedish Companies Act, the Annual Accounts The quality of external financial reporting is guaranteed via a Act and the Swedish Corporate Governance Code. The Annual number of actions and procedures. The President and CEO is Accounts Act requires that the company, each year, describes its responsible for ensuring that all information issued, such as system for internal control and risk management with respect to press releases with financial content, presentation material for financial reporting. The Board bears the overall responsibility for meetings with the media, owners and financial institutions, is financial reporting. Its working procedures regulate the internal correct and of a high quality. The responsibilities of the compa- division of work between the Board and its committees. ny’s auditors include reviewing accounting issues that are critical for the financial reporting and reporting their observations to the The Audit Committee has an important task of preparing the Audit Committee and the Board of Directors. In addition to the Board’s work to assure the quality of financial reporting. This audit of the annual accounts, a review of the six-month report SCA ANNUAL AND SUSTAINABILITY REPORT 2020 preparation work includes issues relating to internal control and and of the company’s administration and internal control is car- regulation compliance, control of recognized values, estima- ried out. tions, assessments and other activities that may impact the quality of the financial statements. The Committee has charged Risk management the company’s auditor with the task of specifically examining the With regard to financial reporting, the risk that material errors degree of compliance in the company with the rules for internal may be made when reporting the company’s financial position control, both general and detailed. and results is considered the primary risk. To minimize this risk, control documents have been established pertaining to Financial reporting to the Board accounting, procedures for annual accounts and follow-up of The Board’s formal work plan stipulates which reports and infor- reported annual accounts. There is also a common system for mation of a financial nature shall be submitted to the Board at reporting annual accounts. SCA’s Board of Directors and man- each scheduled meeting. The President and CEO ensures that agement assess the financial reporting from a risk perspective the Board receives the reports required to enable the Board to on an ongoing basis. To provide support for this assessment, the continuously assess the company’s and Group’s financial posi- company’s income statement and balance sheet items are com- tion. Detailed instructions specifically outline the types of reports pared with earlier reports, budgets and other forecasts. that the Board is to receive at each meeting.
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Control activities and follow-up Internal control of other processes Significant instructions and guidelines related to financial The basis for the internal control is identifying and assessing reporting are prepared and updated regularly by the Group risks. A review of identified risks is conducted every year with the Finance Function and are accessible on the Group’s intranet. addition of any new identified risks. At the same time, an evalua- The Group Finance Function is responsible for ensuring compli- tion is carried out of the potential impact of the risks on profits ance with instructions and guidelines. Process owners at various and the brand, and the probability that the risk will occur. levels within SCA are responsible for carrying out the necessary control measures with respect to financial reporting. An impor Risks that threaten business objectives are linked to the compa- tant role is played by the business areas and support units’ ny’s processes. For each process and identified risks, the con- finance and controller organizations, which are responsible for trol activities are defined that must be established to manage ensuring that financial reporting from each unit is correct, com- risks, and a description of how self-assessments are used to plete and delivered in a timely manner. The company’s control monitor the effectiveness of the control activities. activities are supported by the budgets prepared by each unit and updated during the year through regular forecasts. Control activities to mitigate the identified risks are documented, and the effectiveness of each control is tested on an annual SCA has a standardized system of control measures involving basis through self-assessments. The Group’s internal control processes that are significant to the company’s financial function summarizes the result of the self-assessments and SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA reporting, among other matters. The controls are adapted to the reports to management and the Board. operational process and system structure of each unit. Accord- ingly, each unit prepares a record of the actual controls to be Activities in 2020 carried out in the unit in question. Control of these processes is In 2020, SCA has continued to develop the framework for internal assessed and updated through self-evaluation followed up by a controls. The scope of the self-assessment of control proce- review through the internal control function. In some cases, SCA dures has been extended to include additional processes. The has enlisted help to validate these control measures from the results of the self-assessment have been reported to the Board. internal auditors and external parties.
Financial results are reported and examined regularly within the management teams of the operating units and communicated to SCA’s management at monthly and quarterly meetings. Before reports are issued, results are analyzed to identify and eliminate any mistakes in the process until closing.
The Board follows up to ensure that the internal control and reporting to the Board functions through continuous reporting from the President and CFO and through reporting from the internal audit unit in the scope of the audit plan set annually. Internal audit also continuously reports its observations in this respect to the Audit Committee. Internal audit’s tasks include fol- lowing up compliance with the company’s policies. The results of this follow-up are reported to the Board through the Audit Com- mittee.
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Board of Directors and Auditors
Pär Boman (1961) Charlotte Bengtsson (1971) Lennart Evrell (1954) Annemarie Gardshol (1967) Engineering and Business/ MSc Civil Engineering, PhD in MSc Eng. and Econ. MSc Eng. Economics degree Steel and Timber Structures Board member of Epiroc, ICA, the President and CEO on PostNord Chairman of the Board since 2015. President of Skogforsk. Board Confederation of Swedish Enter- Group AB, President of PostNord Chairman of the Board of Svenska member of Södra’s Research prise and Industriarbetsgivarna. Sverige AB. Board member of Handelsbanken AB and Essity AB, Foundation, Norra Skog’s Former President of Boliden, Sapa Essity AB. Former President of Deputy Chairman of the Board of Research Foundation, the Nils and and Munters. PostNord Strålfors Group AB and AB Industrivärden and member of Dorthi Troedsson’s Research various management positions at the Board of Skanska AB. Former Foundation. Elected: 2017 PostNord and Gambro AB as well President of Handelsbanken Class B shares: 4,000 as management consultant at during the period 2006 to 2015. Elected: 2017 McKinsey & Company. Class B shares: 2,360 Independent of the company, Elected: 2010 corporate management and SCA’s Elected: 2015 Class B shares: 10,000 Independent of SCA’s major major shareholders. Class B shares: 6,200 shareholders. Independent of the company and Independent of the company, corporate management. corporate management and SCA’s major shareholders. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Ulf Larsson (1962) Martin Lindqvist (1962) Bert Nordberg (1956) Anders Sundström (1952) BSc Forestry Engineer and Master of Business Engineer Academic studies in economy and Administration politics at Umeå University President and CEO of SCA. Chairman of the Board of Vestas Chairman of the Swedish Forest President and CEO of SSAB. Wind Systems A/S. Board member Chairman of the Board of Kaunis Industries Federation, Deputy Chairman of the Board of Jernkon- of Essity AB and SAAB AB. Previ- Holding, NMI Group, Hedlunda chair of Industriarbetsgivarna and toret, and of Stål och Metall. ously held various management Industri AB and Ekhaga AB. Previ- the Swedish Forest Industries, Deputy Chairman of the Board of positions in Ericsson Group and ously Chairman of the Board at board member of Handelsbanken Industriarbetsgivarna. Digital Equipment Corp. President Swedbank and CF, among others. Region Umeå, and CEPI, member Previously held senior positions, of Sony Mobile Communications Many years of operating experi- of the Advisory Council Västernor- including at SSAB and NCC. AB between 2009–2012 and Board ence within both the industry and rland County. Former President of member of BlackBerry Ltd, Skistar the financial sector, including as SCA Forest Products AB, 2008– Elected: 2017 AB, AB Electrolux and Axis AB. CEO for Folksam. Has held several 2017, as well as Executive Vice ministerial posts and other political President of SCA 2016–2017. Independent of the company, Elected: 2012 assignments. corporate management and SCA’s Class B shares: 16,800 Elected: 2017 major shareholders. Elected: 2018 Employed since: 1992 Independent of the company, Class B shares: 6,000 Class A shares: 12,000, B shares: corporate management and SCA’s 100,000 major shareholders. Independent of the company, corporate management and SCA’s Independent of SCA’s major major shareholders. shareholders.
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Employee representatives
Barbara Milian Thoralfsson Per Andersson (1955) Roger Boström (1971) Johanna Viklund Lindén (1959) Swedish Paper Workers Union, Chairman of the Swedish Paper (1973) MBA, BA dept 29, SCA Obbola AB Workers’ Union dept. 167 at SCA Chairman Unionen, SCA Graphic Member of the Swedish Trade Graphic Sundsvall AB, Östrand Sundsvall AB/SCA Sourcing &
Board member of Essity AB, Hilti Union Confederation (LO). pulp mill Logistics 2020 REPORT SUSTAINABILITY AND ANNUAL SCA AG and G4S Plc. Industry advisor Member of the Swedish Trade Member of the Council for Nego- to EQT. President of NetCom ASA Appointed: 2020 as acting Union Confederation (LO). tiation and Cooperation (PTK). 2001–2005 and President of Midel- employee representative on the fart & Co AS 1995–2000. Former Board. Former deputy. Appointed: 2013 Appointed: 2017 member of the Boards of AB Elec- Class B shares: 55 Class B shares: 166 trolux, Telenor ASA Cable & Wire- less Plc, Orkla ASA and Tandberg ASA.
Elected: 2006
Independent of the company, corporate management and SCA’s major shareholders.
Employee representatives, Honorary Chairman Secretary to the Board deputies
Maria Jonsson (1966) Bo Rydin Katarina Nilsson (1971) Chairman Unionen, SCA staff MSc Econ., Hon PhD Econ., Master of Laws functions Hon PhD Engineering Senior Vice President, Legal Member of the Council for Nego- Affairs Group Function, General tiation and Cooperation (PTK). Counsel. Appointed 2017. Auditors Employed since: 2019 Class B shares: 300 Stefan Lundkvist (1977) Ernst & Young AB Chairman of Swedish Paper Senior Auditor: Fredrik Norrman, Workers Union, dept 158, SCA Authorized Public Accountant Munksund AB Member of the Swedish Trade Union Confederation (LO). Appointed 2017.
Information regarding individuals’ own and related parties’ shareholdings pertains to the situation on December 31, 2020.
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Executive Management Team SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Ulf Larsson Stina Danielsson Björn Lyngfelt President and CEO Senior Vice President, Human Resources Senior Vice President, Communications BSc Forestry BA BSc Forestry Employed since: 1992 Employed since: 2005 Employed since: 1986 Class A shares: 12,000 Class B shares: 5,756 Class B shares: 12,500 Class B shares: 100,000
Kristina Enander Mikael Källgren Jerry Larsson President, Pulp President, Renewable Energy President, Wood MSc Eng. chemical engineering BSc Energy MSc Eng., MBA in physics Employed since: 2015 Employed since: 2003 Employed since: 1993 Class B shares: 3,685 Class B shares: 5,225 Class B shares: 11,786
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From left to right: Mikael Källgren (President, Renewable Energy), Jonas Mårtensson (President, Forest), Stina Danielsson (Senior Vice President, Human Resources), Magnus Svensson (President, Sourcing & Logistics), Mats Nordlander (President, Paper), Toby Lawton (CFO), Ulf Larsson (President and CEO), Kristina Enander (President, Pulp), Jerry Larsson (President, Wood), Katarina Nilsson (General Counsel), Björn Lyngfelt (Senior Vice President, Communica- tions), Ole Terland (Senior Vice President, Strategic Develop- ment). SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Anders Edholm assumed the role of Senior Vice President, Com- munications on February 1, 2021. He replaces Björn Lyngfelt who is to retire.
Toby Lawton Jonas Mårtensson Katarina Nilsson CFO President, Forest Senior Vice President, Legal Affairs MA MSc Eng. and General Counsel Employed since: 2017 Employed since: 2005 Master of Laws Class B shares: 11,782 Class B shares: 28,042 Employed since: 2019 Class B shares: 300
Mats Nordlander Magnus Svensson Ole Terland President, Paper President, Sourcing & Logistics Senior Vice President, Strategic Dipl. Eng. MSc Eng. Development Employed since: 2015 Employed since: 1993 Doctor of Technology Class B shares: 13,465 Class B shares: 64,880 Employed since: 2016 Class B shares: 33,659
81 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
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Contents Group Financial statements Consolidated income statement IS ...... 84 Consolidated statement of comprehensive income OCI ...... 85 Consolidated statement of change in equity EQ ...... 86 Consolidated balance sheet BS ...... 87 Consolidated cash flow statement CF ...... 88
Group notes A. B. C. D. E. F. G. Accounting principles Sales and earnings Employees Operating assets Capital structure Group structure Other and application of and liabilities and financing alternative perfor- mance measures (APM)
pages 89–93 pages 94–98 pages 99–104 pages 105–111 pages 112–121 pages 122–123 pages 124–125
A1. page 89 B1. page 94 C1. page 99 D1. page 105 E1. page 112 F1. page 122 G1. page 124 General accounting Segment reporting and Personnel costs Intangible fixed assets Financial instruments by Subsidiaries Non-current assets held principles and new revenue from contracts category and measure- for sale and discontinued accounting rules with customers ment level operations
A2. page 91 B2. page 97 C2. page 99 D2. page 106 E2. page 114 F2. page 122 G2. page 125 Application of non- Other operating income Personnel data Tangible fixed assets Financial assets, cash Associated companies Contingent liabilities, International Financial and cash equivalents pledged assets and Reporting Standards commitments (IFRS) performance SCA ANNUAL AND SUSTAINABILITY REPORT 2020 measures
B3. page 97 C3. page 99 D3. page 107 E3. page 114 F3. page 123 G3. page 125 Raw materials and Remuneration of senior Forest assets Trade receivables Corporate acquisitions Transactions with related consumables executives and divestments parties
B4. page 97 C4. page 101 D4. page 108 E4. page 115 G4. page 125 Other operating Fees to Board members Right-of-use assets and Financial liabilities Events after the end of expenses in the Parent Company lease liabilities reporting period
B5. page 97 C5. page 102 D5. page 110 E5. page 117 Taxes Remuneration after Inventories Liquidity risk employment
D6. page 111 E6. page 117 Other current receivables Derivatives and hedge accounting
D7. page 111 E7. page 118 Other liabilities Financial income and Amounts that are reconcilable to the income statement, expenses balance sheet, equity and cash flow statement are marked with the following symbols: D8. page 111 E8. page 119 Other provisions Equity IS Consolidated income statement OCI Consolidated statement of comprehensive income D9. page 111 EQ Consolidated statement of change in equity Trade payables BS Consolidated balance sheet CF Consolidated cash flow statement
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Parent Company Financial statements Parent Company income statement PIS ...... 126 Parent company statement of comprehensive income POCI .....126 Parent Company statement of change in equity PEQ ...... 127 Parent company balance sheet PBS ...... 128 Parent Company cash flow statement PCF ...... 129
Group notes Parent Company notes 2020 REPORT SUSTAINABILITY AND ANNUAL SCA A. B. C. D. E. F. G. PC. Accounting principles Sales and earnings Employees Operating assets Capital structure Group structure Other Parent Company notes and application of and liabilities and financing alternative perfor- mance measures (APM) pages 130–134 pages 89–93 pages 94–98 pages 99–104 pages 105–111 pages 112–121 pages 122–123 pages 124–125 PC1. page 130 Other operating expenses A1. page 89 B1. page 94 C1. page 99 D1. page 105 E1. page 112 F1. page 122 G1. page 124 General accounting Segment reporting and Personnel costs Intangible fixed assets Financial instruments by Subsidiaries Non-current assets held PC2. page 130 principles and new revenue from contracts category and measure- for sale and discontinued Personnel and Board costs accounting rules with customers ment level operations PC3. page 130 Personnel data A2. page 91 B2. page 97 C2. page 99 D2. page 106 E2. page 114 F2. page 122 G2. page 125 PC4. page 130 Application of non- Other operating income Personnel data Tangible fixed assets Financial assets, cash Associated companies Contingent liabilities, Provisions for pensions International Financial and cash equivalents pledged assets and Reporting Standards commitments PC5. page 130 (IFRS) performance Appropriations measures PC6. page 131 B3. page 97 C3. page 99 D3. page 107 E3. page 114 F3. page 123 G3. page 125 Taxes Raw materials and Remuneration of senior Forest assets Trade receivables Corporate acquisitions Transactions with related consumables executives and divestments parties PC7. page 131 Tangible fixed assets B4. page 97 C4. page 101 D4. page 108 E4. page 115 G4. page 125 Other operating Fees to Board members Right-of-use assets and Financial liabilities Events after the end of PC8. page 132 expenses in the Parent Company lease liabilities reporting period Participations in Group companies
B5. page 97 C5. page 102 D5. page 110 E5. page 117 PC9. page 132 Taxes Remuneration after Inventories Liquidity risk Receivables from and liabilities to subsidiaries employment PC10. page 132 D6. page 111 E6. page 117 Other current receivables Other current receivables Derivatives and hedge accounting PC11. page 133 Financial instruments D7. page 111 E7. page 118 Other liabilities Financial income and PC12. page 133 expenses Amounts that are reconcilable to the income statement, Other current liabilities balance sheet, equity and cash flow statement are marked PC13. page 134 D8. page 111 E8. page 119 with the following symbols: Other provisions Equity Share capital PIS Parent Company income statement D9. page 111 POCI Parent Company statement of comprehensive income PC14. page 134 Pledged assets and contingent liabilities Trade payables PEQ Parent Company statement of change in equity PBS Parent Company balance sheet PC15. page 134 PCF Parent Company cash flow statement Proposed disposition of earnings
83 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Group
Consolidated income statement IS
SEKm Note 2020 2019 Net sales B1 18,410 19,591 Other operating income B1, B2 1,620 2,191 Change in inventories –758 304 Change in value in biological assets D3 1,262 16,759 Raw materials and consumables B3 –6,415 –7,373 Personnel costs C1 –3,310 –2,997 Other operating expenses B4 –7,436 –7,100 Result from participations in associated companies F2 20 –14 EBITDA 3,393 21,361 Depreciation and impairment –2,248 –1,696 Operating profit 1,145 19,665 Financial income E7 36 54 Financial expenses E7 –153 –180 Profit before tax 1,028 19,539 Taxes B5 –261 –4,017 Profit for the period 767 15,522
Profit for the period attributable to: Owners of the Parent 767 15,522 Non-controlling interests - 0
Average number of shares, millions 702.3 702.3
Earnings per share Earnings per share, SEK1) 1.09 22.10 Dividend per share, SEK 2.002) – 3) 1) There are no dilution effects. 2) Board proposal. 3) In the 2019 Annual Report, the Board had proposed a dividend of SEK 2 per share. The Annual General Meeting voted, however, not to pay any dividend due to the uncertainty surrounding Covid-19. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
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Consolidated statement of comprehensive income OCI
SEKm Note 2020 2019 IS Profit for the period 767 15,522
Other comprehensive income for the period: Items that cannot be transferred to profit for the period Change in value in land assets D3 3,314 18,893 Result from equity instruments measured at fair value - –2 Remeasurement of defined benefit pension plans 327 444 Income tax attributable to components in other comprehensive income –746 –3,984 Total 2,895 15,351
Items that have been or can be transferred to profit for the period Cash flow hedges: Result from remeasurement of derivatives recognized in equity 566 –489 Transferred to the income statement for the period –515 209 Hedging cost 14 23 Translation differences in foreign operations –75 15 Income tax attributable to components in other comprehensive income –13 53 SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Total –23 –189
Other comprehensive income for the period, net after tax 2,872 15,162 Total comprehensive income for the period 3,639 30,684
Total comprehensive income attributable to: EQ Owners of the Parent 3,639 30,684 EQ Non-controlling interests - 0
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Consolidated statement of change in equity EQ
SEKm 2020 2019 Attributable to owners of the Parent Value January 1 68,510 39,062 OCI Total comprehensive income for the period 3,639 30,684 Cash flow hedge, transferred to cost of hedged investments 19 –8 Tax on cash flow hedge, transferred to cost –4 2 Cash dividend - –1,229 Acquisition of non-controlling interests 0 0 Remeasurement effect upon acquisition of non-controlling interests –1 –1 Value December 31 72,163 68,510
Non-controlling interests Value January 1 0 - OCI Total comprehensive income for the period - - Acquisition of non-controlling interests 0 0 Value December 31 - 0
Total equity, value December 31 72,163 68,510
For further information, see Note E8. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
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Consolidated balance sheet BS
SEKm Note 2020 2019 ASSETS Non-current assets Goodwill D1 - 3 Other intangible assets D1 320 208 Buildings, land, machinery and equipment D2 18,641 18,184 Forest assets D3 74,900 69,682 of which land assets D3 23,624 20,170 of which biological assets D3 51,276 49,512 Right-of-use assets D4 729 841 Holdings in associated companies F2 378 367 Surplus in funded pension plans C5 1,329 1,019 Non-current financial assets E2 81 67 Deferred tax assets B5 15 13 Other non-current assets 5 2 Total non-current assets 96,398 90,386
Current assets SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Inventories D5 4,044 5,014 Trade receivables E3 1,964 2,313 Current tax assets B5 1 105 Other current receivables D6 987 790 Current financial assets E2 0 3 Cash and cash equivalents E2 1,273 454 Total current assets 8,269 8,679
Total assets 104,667 99,065
EQUITY AND LIABILITIES Equity E6, E8 Owners of the Parent Share capital 2,350 2,350 Other capital provided 6,830 6,830 Reserves 17,320 14,693 Retained earnings 45,663 44,637 Total equity owners of the Parent 72,163 68,510 Non-controlling interests - 0 Total equity 72,163 68,510
Non-current liabilities Non-current financial liabilities E4 8,488 5,888 Provisions for pensions C5 530 522 Deferred tax liabilities B5 16,648 15,780 Other non-current provisions D8 90 30 Other non-current liabilities D7 135 131 Total non-current liabilities 25,891 22,351
Current liabilities Current financial liabilities E4 1,336 3,730 Trade payables D9 3,319 3,336 Current tax liabilities B5 14 9 Current provisions D8 744 85 Other current liabilities D7 1,200 1,044 Total current liabilities 6,613 8,204
Total liabilities 32,504 30,555
Total equity and liabilities 104,667 99,065
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Consolidated cash flow statement CF
SEKm Note 2020 2019 Operating activities Profit before tax 1,028 19,539 Payments relating to efficiency program already recognized - –3 T:1 Adjustment for non-cash items 1,580 –15,401 2,608 4,135 Paid tax B5 –35 –652 Cash flow from operating activities before changes in working capital 2,573 3,483 Cash flow from changes in working capital Change in Inventories 780 –605 Operating receivables –181 473 Operating liabilities 532 –54 Cash flow from operating activities 3,704 3,297
Investing activities Company and asset acquisition –462 –1,115 Divestments 63 370 T:2 Investments in intangible and tangible fixed assets –2,665 –2,289 T:2 Sale of tangible fixed assets 108 - Acquisition of financial assets –8 –26 Cash flow from investing activities –2,964 –3,060
Financing activities Loans raised E4 3,875 1,011 Amortization of debt E4 –3,785 –228 Dividend - –1,229 Cash flow from financing activities 90 –446
Cash flow for the period 830 –209 Cash and cash equivalents, January 1 454 648 Exchange differences in cash and cash equivalents –11 15 Cash and cash equivalents, December 31 E2 1,273 454
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 T:1 Adjustment for non-cash items
SEKm 2020 2019 Depreciation and impairment of non-current assets 2,248 1,696 Measurement of fair value of forest assets –1,262 –16,759 Gain/loss on asset sales and swaps 82 –202 Unpaid pertaining to one-off items related to the discontinuation of publication paper operations 600 - Other –88 –136 Total 1,580 –15,401
T:2 Net investments in intangible and tangible fixed assets
SEKm 2020 2019 Current net investments in intangible and tangible fixed assets –1,143 –1,033 Strategic net investments in intangible and tangible fixed assets –1,414 –1,256 Total –2,557 –2,289
For information concerning the Group’s liquidity reserve, refer to the risk section on page 70.
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Group
A. ACCOUNTING PRINCIPLES AND APPLICATION OF ALTERNATIVE PERFORMANCE MEASURES (APM)
A1. GENERAL ACCOUNTING PRINCIPLES AND NEW ACCOUNTING RULES
Reading instructions Changes to accounting principles General accounting principles AP and new accounting rules are IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: presented below. Other accounting principles considered material by Disclosures SCA are presented in conjunction with the respective notes. The same On January 15, 2020 changes to IFRS 9 and IFRS 7 were adopted fol- principles are usually applied in both the Parent Company and the lowing the reference rate reform. SCA is monitoring the transition from Group. In some cases, the Parent Company applies principles other inter bank offered rates (IBOR) to alternative reference rates and is than those used by the Group and, in such cases, these principles are planning its transition based on progress reported. The changes offer specified under the respective note in the section about the Parent exemptions from the application of specific requirements of hedge Company. accounting for hedging relationships that are directly affected by this reform. The exemptions relate to hedge accounting and are to ensure Key assessments and assumptions KAA are presented under the that companies are not required to terminate hedging relationships respective notes. The preparation of financial statements in confor- due to uncertainties concerning the reform. Currently, the reform pri- mity with IFRS (International Financial Reporting Standards) and gen- marily impacts SCA’s cash flow hedges based on STIBOR interest erally accepted Swedish accounting principles requires assessments rates. The implementation is not expected to have a material impact and assumptions to be made that affect recognized asset and liability on the Group’s financial statements. For further information con- items and income and expense items, respectively, as well as other cerning derivatives and hedge accounting, see Note E1 on page 112. information disclosed. These assessments and assumptions are often SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA based on historical experience, but also on other factors, including IFRS 3 Business Combinations expectations of future events. With other assessments and assump- IFRS 3 has been changed with respect to the classification of busi- tions, the result may be different and the actual result will seldom fully ness combinations. The change is applicable to fiscal years beginning concur with the estimated result. on January 1, 2020 or later. If an acquisition is to be classified as a business combination an acquired set of activities and assets must at The areas that SCA considers to be impacted the most by assess- least include resources and a substantial process that together con- ments and assumptions are: tribute to the ability to create output. Input is an economic resource • Segment reporting and revenue from contracts with customers, (for example non-current assets) that creates, or contributes to create, Note B1 outputs when one or more processes are applied to it. A process is a • Taxes, Note B5 system or standard that when applied to an input or inputs, creates • Remuneration after employment, Note C5 outputs or may contribute to creating outputs. Output is the invest- • Forest assets, Note D3 ment income or income from ordinary activities, which is generated as • Right-of-use assets and lease liabilities, Note D4 a result of inputs and processes applied to those inputs.
Amounts that are reconcilable to the income statement, balance An option exists to conduct a voluntary concentration test, which is sheet, equity and cash flow statement and tables in notes are marked a simplified assessment of whether an acquired set of activities and with the following symbols. assets is not a business. It is not considered a business if virtually the IS Consolidated income statement entire fair value of the acquired gross assets is concentrated to a single, identifiable asset or group of similar identifiable assets. OCI Consolidated statement of comprehensive income EQ Consolidated statement of change in equity The changes to IFRS 3 has not impacted SCA, since all corporate BS Consolidated balance sheet acquisitions in 2020 were classified as asset acquisitions. For further information concerning business combinations, see Note F3 on CF Consolidated cash flow statement page 123. Tx:x Reference to table in note IFRS 16 Leases Basis for preparation On May 28, 2020, an amendment was introduced, which means a The SCA Group’s financial statements are prepared in accordance lessee does not need to determine whether rent concessions occur- with the Annual Accounts Act, International Financial Reporting Stan- ring as a direct consequence of the Covid-19 pandemic are modifica- dards (IFRS) and International Accounting Standards (IAS), as adopted tions of the existing lease. Changed payment is instead recognized within the EU, and the Swedish Financial Reporting Board, Recom- directly in the income statement. During the year, SCA did not receive mendation RFR 1 Supplementary Accounting Rules for Groups. The any discounts related to Covid-19 and accordingly the amendment will Parent Company’s financial statements are prepared in accordance not have an impact. For further information concerning leases, see with the Swedish Financial Reporting Board’s recommendation RFR 2, Note D4 on page 108. Reporting by Legal Entities, and the Annual Accounts Act. The accounts for both the Group and the Parent Company relate to the Principles of consolidation fiscal year that ended on December 31, 2020. SCA applies the histor- The Group’s financial statements are prepared in accordance with the ical cost method as basic principle for measurement of assets and lia- Group’s accounting principles and include the accounts of the Parent bilities. Biological assets and financial assets and liabilities, including Company and all Group companies in accordance with the definitions derivative instruments, are, however, measured at fair value in the below. Group companies are consolidated from the date the Group income statement. Land assets connected to forest assets are mea- exercises control or controlling influence over the company according sured at fair value in other comprehensive income. Financial assets in to the definitions provided below. Divested Group companies are the form of equity instruments not held for trading are measured at fair included in the consolidated accounts until the date the Group ceases value in other comprehensive income. In the Parent Company, biolog- to control or exercise controlling influence over the companies. Intra- ical assets are not measured at fair value. Group transactions have been eliminated.
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Subsidiaries If hedge accounting has been applied, for example, for cash flow All companies over which the Group has a controlling influence are hedges or hedging of net investments, the exchange rate effect is consolidated as subsidiaries. Controlling influence means that SCA is recognized in equity under other comprehensive income. exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns using its For financial assets in the form of equity instruments that are not held power to direct activities. The consolidated financial statements are for trading, the portion of the value change pertaining to currency is prepared in accordance with the acquisition method. recognized in the income statement. Any other unrealized change is recognized in equity under other comprehensive income. Translation of foreign currency Functional currency and translation of foreign Group companies Revenue recognition to the presentation currency Sales revenue, which is synonymous with net sales, includes the con- SCA’s Parent Company has Swedish kronor (SEK) as its functional sideration for goods and services sold within the Group’s main busi- currency. The functional currency of each SCA Group company is ness. This consists entirely of revenue from contracts with customers determined on the basis of the primary economic environment in and is recognized in accordance with IFRS 15. Other operating income which the respective company is active. The financial statements of includes compensation for sales that are not included in the Group’s Group companies are translated to the Group’s presentation currency, main business, for instance, logistics income from SCA’s transport which is SEK in the case of SCA. Assets and liabilities are translated at activities, income from sales of by-products from the production of the closing rate, while income and expenses are translated at the the Group’s main products, income from sales of forest seedlings and average rate for the period. Translation differences on net assets are gravel, revenue from leases, lease income from hunting and fishing recognized as translation differences in other comprehensive income, rights and for wind power, and capital gains from the sale of fixed which is a component of translation reserves in equity. assets. The translation differences on trade receivables are also rec- ognized as other operating income. Most other operating income con- Exchange rate effects arising from financial instruments used to sists of revenue from contracts with customers and is recognized in hedge foreign subsidiaries’ net assets are recognized in the same accordance with IFRS 15. Income from the sale of self-produced manner in other comprehensive income, which is a component of energy, electricity certificates and emission allowances is recognized translation reserves in equity. On divestment, the translation differ- as reduced energy costs. Interest income is recognized in accordance ence on the foreign subsidiary and exchange rate effects on the finan- with the effective interest method, meaning the estimated change in cial instrument used to currency hedge the net assets in the company value (effective interest) is recognized as interest income or interest are recognized as part of the gain or loss on disposal. expense in the income statement. Dividends received are recognized when the right to receive a dividend has been established. Goodwill and surplus value adjustments arising in connection with the acquisition of a foreign subsidiary are to be translated, in a manner Government grants corresponding to the net assets in the company, from their functional Government grants are recognized at fair value when there is reason- currency to the presentation currency. able assurance the grants will be received and that the Group will comply with the conditions attached to them. Government grants Transactions and balance sheet items in foreign currency related to acquisition of assets are recognized in the balance sheet by Transactions in foreign currency are translated to a functional cur- the grant reducing the carrying amount of the asset. Government rency using the rate prevailing on the transaction date. At accounting grants received as compensation for costs are accrued and recog- year-end, monetary assets and liabilities are translated at the closing nized in the income statement during the same period as the costs. If day rate and any exchange rate effects are recognized in the income the government grant is neither related to the acquisition of assets nor statement. In cases where the exchange rate effect is related to the to compensation for costs, the grant is recognized as other income. operations, the effect is recognized net in operating profit. Exchange For more information about Government grants, refer to Notes B2, B4 rate effects pertaining to borrowing and financial investments are rec- and D2. ognized as other financial items. Non-monetary assets and liabilities recognized at historical cost are translated at the exchange rate prevailing on the transaction date. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
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A2. APPLICATION OF NON-INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) PERFORMANCE MEASURES
The Annual Report refers to a number non-IFRS performance mea- performance measures used as a complement to the financial infor- sures used to assist investors and company management to analyze mation reported according to IFRS is presented below. the company’s operations. A description of the various non-IFRS
Calculation of financial measures not included in IFRS
PERFORMANCE MEASURES Various types of performance measures and margin measures expressed as a percentage of sales Key figures Description Application of the measure EBITDA Profit before depreciation, amortization and impairment, This measure is a complement to operating profit, as it shows financial items and taxes. the cash surplus from operations. EBITDA margin Profit before depreciation, amortization and impairment, This measure is a complement to operating margin, as it shows financial items and taxes as a percentage of net sales for the cash surplus in relation to net sales. Management uses the the year. measure as one of the most important in controlling the com pany’s business areas. Operating margin Operating profit as a percentage of net sales during the period. Operating margin describes operating profit in relation to net sales. Net margin Profit for the period as a percentage of net sales for the period. Net margin describes how much of net sales remains after costs and tax have been deducted. Restructuring costs Costs for impairment together with personnel costs in connec- This measure shows the specific costs that have arisen in tion with structural changes to the company’s operations. connection with structural changes of an operation, which con-
tributes to an understanding of the underlying cost level in the 2020 REPORT SUSTAINABILITY AND ANNUAL SCA continuing operating activities.
CAPITAL MEASURES Show how capital is utilized and the company’s financial strength Key figures Description Application of the measure Capital employed Calculated as the balance sheet’s total assets excluding The management follows this measure to reduce the capital tied financial assets and pension assets, less non-interest-bearing up in operations that is financed by owners and creditors. liabilities.
SEKm 2020 2019 CAPITAL EMPLOYED Total assets 104,667 99,065 Financial assets and pension assets –2,683 –1,543 Non-current, non-interest-bearing liabilities –16,873 –15,941 Current, non-interest-bearing liabilities –5,277 –4,474 Capital employed 79,834 77,107
CAPITAL EMPLOYED PER SEGMENT Forest 61,706 57,776 Wood 3,302 3,443 Pulp 8,781 9,115 Paper 7,739 7,471 Other –1,694 –698 Capital employed 79,834 77,107
Key figures Description Application of the measure Working capital Working capital is calculated as current operating receivables The management monitors this measure to reduce capital tied (inventories, trade receivables and other non-interest-bearing up in the balance sheet from the company’s operations. current receivables) less current operating liabilities (trade pay- ables and other non-interest-bearing current liabilities).
SEKm 2020 2019 WORKING CAPITAL Inventories 4,044 5,014 Trade receivables 1,964 2,313 Other current receivables 987 790 Trade payables –3,319 –3,336 Other current liabilities –1,200 –1,044 Adjustments1) 283 11 Working capital 2,759 3,748 1) Adjustment of non-operating-related items: receivables from electricity certificates, trade payables from strategic investments and liabilities from emission allowances.
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Key figures Description Application of the measure Working capital Calculated as an average of working capital for 13 months as a The management monitors this measure to reduce capital tied as a percentage of percentage of 12-month rolling net sales. up in the balance sheet from the company’s operations. net sales Net debt Calculated as current and non-current financial liabilities and pro- Net debt describes the company’s total debt financing and is visions for pensions with deductions for financial assets (surplus monitored by the management. in funded pension plans, financial assets and cash and cash equivalents).
SEKm 2020 2019 NET DEBT Net debt January 1 8,597 7,020 Net cash flow –633 1,150 Remeasurements to equity –327 –443 Lease liability –103 854 Exchange rate effects and market value changes 137 16 Net debt December 31 7,671 8,597
Surplus in funded pension plans 1,329 1,019 Non-current financial assets 81 67 Current financial assets 0 3 Cash and cash equivalents 1,273 454 Financial assets 2,683 1,543 Non-current financial liabilities 8,488 5,888 Provisions for pensions 530 522 Current financial liabilities 1,336 3,730 Financial liabilities 10,354 10,140 Net debt 7,671 8,597
Key figures Description Application of the measure Debt/equity ratio Net debt in relation to equity Shows financial risk and is a useful measure for management to monitor the level of the company’s indebtedness.
RETURN MEASURES Return is a financial term that describes how much the value of an asset changes from an earlier point in time Key figures Description Application of the measure Return on capital Accumulated return on capital employed is calculated as 12-month Used to measure return on capital tied up in operations. employed, ROCE rolling operating profit as a percentage of average capital employed for the five most recent quarters. The corresponding key figure for a single quarter is calculated as operating profit for the quarter multiplied by four as a percentage of average capital employed for the two most recent quarters. One-off items are excluded. Industrial segments only use industrial ROCE. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Return on capital Calculated as the Group’s return on capital employed, excluding Shows the underlying industrial return on capital employed employed, industrial operating profit and capital employed from the Forest operating adjusted for the ongoing strategic capital expenditures. ROCE segment and a share of Other operations. Strategic capital expen- ditures in industry that have not begun operating and one-off items are excluded. This measure applies to all industrial segments.
SEKm Forest Wood Pulp Paper Other Total Group 2020 fiscal year Return on capital employed, ROCE Operating profit, SEKm 1,987 407 73 640 –268 2,839 Average capital employed, SEKm 58,975 3,443 9,062 7,816 –1,231 78,065 Average ongoing strategic capital expenditures, SEKm - - - 1,551 - 1,551 Return on capital employed, ROCE, % 3.4 - - - - 3.6 Return on capital employed, industrial ROCE, % - 11.8 0.8 10.2 - 5.4
SEKm Forest Wood Pulp Paper Other Total Group 2019 fiscal year Return on capital employed, ROCE Operating profit, SEKm 1,528 511 453 1,498 –287 3,703 Average capital employed, SEKm 34,599 3,502 9,283 7,062 –792 53,655 Average ongoing strategic capital expenditures, SEKm - - –48 182 - 134 Return on capital employed, ROCE, % 4.4 - - - - 6.9 Return on capital employed, industrial ROCE, % - 14.6 4.9 21.8 - 11.9
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CASH FLOW PERFORMANCE MEASURES Various performance measures and costs that have impacted the company’s cash flow Key figures Description Application of the measure Operating cash EBITDA with deductions for capital gains and capital losses from This measure shows cash flow generated by the income surplus intangible and tangible fixed assets and the reversal of the result of statement when calculating operating cash flow. participations in associated companies and the result of the revalua- tion of biological assets. Operating cash flow Operating cash flow comprises the sum of operating cash surplus The management controls the business areas using this and change in working capital, with deductions for current net invest- measure that shows the combined cash flow from oper- ments in property, plant and equipment and restructuring costs. ating activities that the units themselves can influence.
SEKm 2020 2019 OPERATING CASH FLOW Forest Operating cash surplus 948 875 Change in working capital 226 –229 Current net investments –358 –113 Restructuring costs, etc. 1 –1 Operating cash flow 817 532
Wood
Operating cash surplus 628 789 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Change in working capital 235 197 Current net investments –281 –287 Restructuring costs, etc. –9 –18 Operating cash flow 573 681
Pulp Operating cash surplus 613 981 Change in working capital 6 –178 Current net investments –158 –126 Restructuring costs, etc. 7 39 Operating cash flow 468 716
Paper Operating cash surplus 1,196 2,068 Change in working capital 237 73 Current net investments –244 –514 Restructuring costs, etc. 12 –166 Operating cash flow 1,201 1,461
Key figures Description Application of the measure Cash flow from Operating cash flow less net financial items and tax payments and This measure illustrates the cash flow generated by opera- current operations taking into account other financial cash flow. tions and that can potentially be used for strategic initia- tives, such as capital expenditures or acquisitions. Strategic capital Strategic capital expenditures increase the company’s future cash Shows the size of the capital expenditures that are made in expenditures in flow through acquisitions of companies, capital expenditures to expansion in production capacity and other growth mea- non-current assets expand facilities, or new technologies that increase competitiveness. sures. Current net invest- Current net investments are made to maintain competitiveness, and Shows the size of the capital expenditures required to ments include maintenance, rationalization and replacement measures or maintain existing capacity in operations. investments of an environmental nature with deductions for compen- sation from divested non-current assets.
Consolidated operating cash flow statement
SEKm 20201) 2020 20191) 2019 IS EBITDA 4,440 3,393 5,319 21,361 Changes in value biological assets and other non-cash items –1,287 –601 –937 –16,979 Operating cash surplus 3,153 2,792 4,382 4,382 Change in working capital 745 1,131 –186 –186 Current net investments2) –1,201 –1,224 –1,132 –1,132 Other operating cash flow –12 –11 –142 –142 Operating cash flow 2,685 2,688 2,922 2,922 1) Excluding one-off items related to the changed accounting method for the valuation of forest assets in 2019 and the discontinuation of publication paper operations in 2020. 2) Includes SEK 81m (99) from new, remeasured and terminated lease contracts.
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B. SALES AND EARNINGS
B1. SEGMENT REPORTING AND REVENUE FROM CONTRACTS WITH CUSTOMERS
AP ACCOUNTING PRINCIPLES KAA KEY ASSESSMENTS AND ASSUMPTIONS Segments SCA has determined that control passes to the customer under IFRS Segments are recognized in accordance with IFRS 8 Operating Seg- 15 when the risk is transferred according to the applicable delivery ments in a manner that complies with the internal reporting submitted terms. to the chief operating decision maker. The chief operating decision maker is the function that is responsible for allocating resources and SCA’s contracts with customers are mainly framework agreements assessing the result of the operating segments. At SCA, this function without established minimum volumes, which means a binding agree- has been identified as the company’s President and CEO, who is ment in accordance with the criteria specified in IFRS 15 arises when responsible for and manages the day-to-day administration of the the customer makes a call-off order. SCA’s performance obligation in Group in accordance with the Board’s guidelines and terms of refer- the contracts consists of providing the goods specified in the con- ence. The Executive Management support the President and CEO in tracts. his work: see the section Corporate governance in the Board of Directors’ Report on page 71. The transaction price primarily consists of a fixed price per sold quan- tity. Variable parts, such as cash discounts, volume discounts and A description of the four operating segments can be found on delivery bonuses, only occur to a small extent, and then reduce the pages 24–43. transaction price. The transaction price is estimated at the value that is expected to accrue to SCA when entering into the agreement. The Revenue from contracts with customers transaction price is continuously updated if the circumstances that SCA applies IFRS 15 Revenue from contracts with customers. The form the basis of the estimate change. Performance obligations con- standard is based on a five-step control model and requires that rev- sist of sales of goods, which are satisfied at a point in time. The con- enue is recognized at an amount that reflects the consideration to trol is transferred to the customer at the same time as the risk for the which the entity expects to be entitled in exchange for promised goods is transferred, in accordance with the Incoterms applicable in goods or services to customers. The standard regulates commercial the contract. SCA applies the Delivered At Place (DAP) terms for agreements (contracts) with customers in which delivery of goods and approximately 60% of sales revenues, meaning risk is transferred services is divided into separately identifiable performance obliga- when the goods are made available to the customer at the agreed des- tions that are recognized independently. The standard establishes tination. For other freight terms applied, the risk is transferred when rules for calculating the transaction price for delivery of goods and the goods are loaded on to the vessel or other freight vehicle. Payment services and the manner in which this can be allocated among the var- terms follow industry practice without long credit periods. ious performance obligations. Revenue is recognized when control has passed to the customer by the customer being able to use or ben- efit from the goods or services, at which point it is deemed to have been transferred. Control may be passed at a given point in time, which is usually the case for sale of goods. In other cases, a perfor- mance obligation may be satisfied over time, which is common for services.
Reporting by operating segment SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Total SEKm Forest Wood Pulp Paper Other Eliminations Group TB1:1 2020 fiscal year External sales - 6,296 4,198 7,916 - - 18,410 of which goods - 6,296 4,198 7,916 - - 18,410 Internal sales 6,486 0 233 - - –6,719 - IS Net sales 6,486 6,296 4,431 7,916 - –6,719 18,410 Other operating income 618 859 728 1,659 58 –2,302 1,620 of which goods 559 551 3 105 –11 –305 902 of which services 56 287 763 1,551 69 –2,004 722 of which other operating income 3 21 –38 3 - 7 –4 Operating expenses –4,891 –6,518 –4,545 –8,385 –1,338 9,021 –16,657 Result from participations in associated companies - 20 - 0 - - 20 EBITDA 2,213 657 614 1,190 –1,281 0 3,393 Depreciation and impairment –226 –249 –540 –550 –682 0 –2,248 IS Operating profit 1,987 407 73 640 –1,963 0 1,145
Other disclosures Capital employed 61,706 3,302 8,781 7,739 –1,694 0 79,834 Net investments1) –435 –281 –237 –1,497 –189 - –2,639 1) Includes SEK 81m from new, remeasured and terminated lease contracts in 2020.
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Total SEKm Forest Wood Pulp Paper Other Eliminations Group TB1:1 2019 fiscal year External sales - 6,325 4,037 9,229 - - 19,591 of which goods 0 6,325 4,037 9,229 - - 19,591 Internal sales 6,956 - 340 - - –7,296 - IS Net sales 6,956 6,325 4,377 9,229 - –7,296 19,591 Other operating income 847 1,029 692 2,023 54 –2,454 2,191 of which goods 636 562 1 120 –9 –325 985 of which services 66 413 701 1,864 63 –2,134 973 of which other operating income 145 54 –10 39 - 5 233 Operating expenses –6,063 –6,560 –4,086 –9,188 15,740 9,749 –407 Result from participations in associated companies - –5 - - –9 - –14 EBITDA 1,740 789 983 2,064 15,785 - 21,361 Depreciation and impairment –212 –278 –530 –566 –110 - –1,696 IS Operating profit 1,528 511 453 1,498 15,675 - 19,665
Other disclosures Capital employed 57,776 3,443 9,115 7,471 –698 - 77,107 Net investments1) –113 –289 –473 –1,417 –96 - –2,388 1) Includes SEK 99m from new, remeasured and terminated lease contracts in 2019. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Operating segments The Paper segment comprises packaging paper (kraftliner) manufac- SCA recognizes four operating segments in accordance with IFRS 8. tured in Obbola and Munksund, and publication paper manufactured in Ortviken, and used for magazines, catalogs and commercial print. The Forest segment manages 2.6 million hectares of forest land, of which 2.0 million is productive, and supplies timber to SCA’s forest Intra-Group deliveries industry operations (Wood, Pulp and Paper). SCA harvests roughly the Revenues, expenses and results for the various operating segments same volume of timber from its own forests as it purchases from other were affected by intra-Group deliveries. Internal prices are market- forest owners. By-products are used in energy production. based. Intra-Group deliveries are eliminated when preparing the The Wood segment comprises five sawmills and wood processing units consolidated financial statements. with planing mills in Sweden, co-owned operations in France and a dis- tribution and wholesale business. By-products are used in energy pro- Customers duction. Sawmill operations in the UK were divested in December 2020. SCA’s ten largest customers account for 31% (32) of the company’s sales. Revenue from the largest customer amounts to SEK 2,113m The Pulp segment comprises the production of kraft pulp (NBSK) (2,279) and is reported in the Paper segment. and chemi-thermomechanical pulp (CTMP). Pulp is manufactured in Östrand.
Revenue from contracts with customers The tables below show revenue from contracts with customers in accordance with IFRS 15. Total SEKm Forest Wood Pulp Paper Other Eliminations Group 2020 fiscal year Net sales 6,486 6,296 4,431 7,916 - –6,719 18,410 of which revenue from contracts with customers, goods 6,486 6,296 4,431 7,916 - –6,719 18,410 Other operating income 618 859 728 1,659 58 –2,302 1,620 of which revenue from contracts with customers, goods 559 551 3 105 –11 –305 902 of which revenue from contracts with customers, services 56 287 763 1,551 69 –2,004 722 of which other operating income 3 20 –38 3 0 7 –5 of which revenue from leases - 1 - - - - 1
Total SEKm Forest Wood Pulp Paper Other Eliminations Group 2019 fiscal year Net sales 6,956 6,325 4,377 9,229 0 –7,296 19,591 of which revenue from contracts with customers, goods 6,956 6,325 4,377 9,229 - –7,296 19,591 Other operating income 847 1,029 692 2,023 54 –2,454 2,191 of which revenue from contracts with customers, goods 636 548 4 126 - –316 998 of which revenue from contracts with customers, ser- vices 66 382 636 1,801 - –1,961 924 of which other operating income 145 99 52 96 54 –177 269
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Net sales – sold to1) Net sales – sold by1) 2020 2019 2020 2019 TB1:1 Group by country SEKm % SEKm % SEKm % SEKm % Sweden 2,587 14 2,798 14 16,206 88 17,293 88
EU excl. Sweden United Kingdom 3,503 19 3,468 18 1,777 10 1,621 8 Germany 2,132 12 2,795 14 - - - - France 934 5 1,160 6 - - 175 1 Poland 576 3 606 3 - - - - Denmark 522 3 644 3 - - - - Spain 518 3 633 3 - - - - Netherlands 436 2 609 3 - - - - Italy 393 2 370 2 - - - - Finland 337 2 356 2 - - - - Belgium 271 1 423 2 - - - - Other 737 4 702 4 - - - - Total EU excl. Sweden 10,359 56 11,766 60 1,777 10 1,796 9
Rest of Europe Norway 861 5 945 5 - - - - Switzerland 119 1 135 1 - - - - Other 238 1 213 1 - - - - Total, rest of Europe 1,218 7 1,293 7 - - - -
Rest of world USA 1,352 7 739 4 - - - - China 707 4 1,033 5 - - - - Japan 524 3 607 3 - - - - Morocco 279 2 296 2 - - - - Egypt 248 1 184 1 - - - - India 75 0 147 1 - - - - Hong Kong 1 0 5 - 427 2 502 3 Other 1,060 6 723 4 - - - - Total, rest of world 4,246 23 3,734 19 427 2 502 3
Total Group 18,410 100 19,591 100 18,410 100 19,591 100 1) Net sales have been recognized from two perspectives. The first column “Net sales – sold to” is based on sales to the countries where SCA has its customers. The second column “Net sales – sold by”, meaning revenue from external customers where the company is domiciled and in other countries from which the company receives revenues. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Average number of employees Non-current assets1) Of whom Of whom Of whom Of whom SEKm SEKm Group by country 2020 men, % women, % 2019 men, % women, % 2020 2019 Sweden 3,888 79 21 3,816 80 20 92,910 87,869
EU excl. Sweden United Kingdom 226 87 13 295 89 11 0 82 Germany 42 53 47 43 49 51 1 1 Latvia 13 43 57 4 75 25 1,229 541 Estonia 9 66 34 8 73 27 448 420 France 7 71 29 12 91 9 1 4 Netherlands 2 100 - 63 89 11 - - Other 2 100 - 3 100 - 1 1 Total EU excl. Sweden 301 80 20 428 85 15 1,680 1,049
Rest of world Hong Kong 7 43 57 9 35 65 0 - Total, rest of world 7 43 57 9 35 65 0 -
Total Group 4,196 79 21 4,253 81 19 94,590 88,918 1) Non-current assets comprise goodwill, other intangible assets, buildings, land, machinery and equipment, forest assets and right-of-use assets.
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B2. OTHER OPERATING INCOME B5. TAXES
Specification of other operating income AP ACCOUNTING PRINCIPLES
SEKm 2020 2019 The Group’s tax expense comprises current tax and deferred tax. Transportation 841 885 Current tax is calculated on the taxable profit for the period based on Energy 663 908 the tax rules prevailing in the countries where the Group operates. Other 116 398 Since taxable profit excludes costs that are not tax deductible and IS Total 1,620 2,191 income that is not taxable, this is differentiated from profit before tax in the income statement. Current tax also includes adjustments Other disclosures relating to recognized current tax from prior periods. Interest attribut- Government grants received increased other operating income by able to income tax is also recognized as income tax. SEK 19m (10). Deferred tax is calculated based on temporary differences between the carrying amounts and the taxable values of assets and liabilities and for tax loss carryforwards in so far as it is probable that these can B3. RAW MATERIALS AND CONSUMABLES be utilized against future taxable profits. Deferred taxes are measured at their nominal amount and based on the tax rates enacted on the balance sheet date. Deferred tax is not calculated on the initial recog- Specification of raw materials and consumables nition of goodwill or when an asset or liability is recognized for the first time, provided that the asset or liability is not attributable to a busi- SEKm 2020 2019 ness combination. SCA does not recognize tax that may arise on Timber and chips –3,196 –4,093 future dividends of the retained earnings of foreign subsidiaries. Any Other raw materials and consumables –1,747 –2,017 such future effects (withholding tax deducted at source and other Goods purchased for resale –1,472 –1,263 deferred tax on profit-taking within the Group) are recognized when 2020 REPORT SUSTAINABILITY AND ANNUAL SCA SCA can no longer control the reversal of such differences or when, IS Total –6,415 –7,373 for other reasons, it is probable that a reversal can take place in the foreseeable future.
The recognition of tax effects is determined by the manner in which B4. OTHER OPERATING EXPENSES the underlying transaction is recognized. For items in the income statement, the tax effect is recognized in the income statement. For Specification of other operating expenses transactions in equity and in other comprehensive income, the tax effect is recognized in equity and in other comprehensive income, SEKm 2020 2019 respectively. Transportation –3,718 –3,893 Tax liabilities and tax assets are recognized net when SCA has a legal Energy1) –755 –683 right to offset. Repairs and maintenance –821 –777 IT, telephony and rents –233 –204 Other –1,909 –1,543 KAA KEY ASSESSMENTS AND ASSUMPTIONS IS Total –7,436 –7,100 The Group conducts operations in several countries, which increases 1) After deduction for revenues for energy in the amount of SEK 212m (338). the complexity when determining deferred tax assets and tax liabili- ties. This requires that assessments and assumptions are made to Other disclosures determine the value of the deferred tax asset and deferred tax liability Government grants received reduced operating expenses by SEK on the balance sheet date. Future changes to taxation legislation and 105m (105). Costs for research and development amounted to SEK trends in the business climate will impact the company’s future tax- 42m (41) during the period. able profits and thus its possibility to utilize deferred tax assets on loss carryforwards and other temporary differences. Specification of auditing expenses As of December 31, 2020, SEK 15m (13) was recognized as deferred SEKm 2020 2019 tax assets based on best assessment of future taxable profits in the EY Group. At year-end 2020, the Group also had tax loss carryforwards of Audit assignments –9 –10 SEK 46m (47), for which no deferred tax asset had been recognized. Auditing activities other than the audit assignment –1 –1 Accordingly, a changed assessment of the probability of future tax- able profits could have a positive or negative effect. In SCA’s opinion, Total EY –10 –11 at the end of 2020 there were no material uncertain tax items in the financial statements which could result in a significant adjustment of Other auditors the reported values during forthcoming fiscal years. Audit assignments 0 0 Key assessments and assumptions are also made regarding recogni- Total other auditors 0 0 tion of provisions and contingent liabilities relating to tax risks. For Total –10 –11 further information, refer to Note G2.
97 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
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TB5:1 Tax expense TB5:2 Paid tax Tax expense (+), tax income (–) Tax payments by SCA entities by country, paid tax (–) 2020 2019 SEKm 2020 2019 SEKm SEKm %1) SEKm %1) France 0 5 Current tax Netherlands - –3 Income tax for the period 146 55.9 443 2.3 Japan - –3 Adjustments for prior periods 6 2.3 3 - Sweden –24 –643 Current tax expense 152 58.2 446 2.3 United Kingdom –1 –3 Germany –9 –5 Deferred tax Other –1 0 Changes in temporary differences 80 30.6 3,726 19.1 CF Total –35 –652 Adjustments for prior periods 32 12.3 –16 –0.1 Revaluation –3 –1.1 –139 –0.7 TB5:3 Deferred tax liability 2020 TB5:3 Deferred tax expense 109 41.8 3,571 18.3 Deferred tax liability (+), deferred tax asset (–) IS Tax expense 261 25.4 4,017 20.6 Deferred 1) Percentage of profit before tax. Value tax Other Value SEKm January 1 expense changes2) December 31 Explanation of tax expense Intangible fixed The difference between the recognized and expected tax expense is assets 3 0 0 3 explained below. The expected tax expense is calculated based on Tangible fixed profit before tax in each country multiplied by the tax rate in effect in assets 1,827 –81 0 1,746 the country. Forest assets 13,977 321 679 14,977 2020 2019 Financial non- current assets 204 –10 53 247 SEKm SEKm % SEKm % Current assets 9 –31 10 –12 Profit before tax 1,028 19,539 Provisions –110 –129 8 –231 IS Tax expense 261 25.4 4,017 20.6 Liabilities –162 64 –15 –113 Expected tax expense 193 18.8 4,198 21.5 Future tax credits Difference 68 6.6 –181 –0.9 and tax loss carry- forwards –13 –4 0 –17 The difference is due to: Other 32 –21 22 33 Permanent differences between BS Total1) 15,767 109 757 16,633 accounting and taxable result 1) The closing deferred tax liability comprises deferred tax assets of SEK 15m (13) Other permanent effects1) 35 3.4 –28 –0.1 and deferred tax liabilities of SEK 16,648m (15,780). 2) Other changes include deferred tax recognized directly in equity according to 2) Taxes related to prior periods 38 3.7 –13 –0.1 IAS 19 of SEK 67m and IFRS 9 hedge accounting derivatives of SEK 17m. Fur- Changes in the value of deferred tax thermore, deferred tax is included related to the change in fair value of land assets –2 –0.2 –1 - assets of SEK 679m and deferred tax related to the divestment of SCA Wood Changes in tax rates3) –3 –0.3 –139 –0.7 UK Ltd of SEK –6m. Total 68 6.6 –181 –0.9 Loss carryforwards 1) Other permanent effects in 2020 relate primarily to non-deductible costs in con- Future tax credits and loss carryforwards for which deferred tax junction with the dissolution of the hedge reserve linked to publication paper
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 assets were recognized have been reported at the tax amount of SEK operations, non-deductible capital losses attributable to the divestment of SCA 17m on the line future tax credits and tax loss carryforwards in Wood UK Ltd and non-deductible capital losses on forest land. Other perma- nent effects in 2019 related primarily to non-taxable capital gains in conjunction table TB5:3 . Loss carryforwards for which no deferred tax assets with the divestment of the logistics terminal in Rotterdam and non-taxable rev- were recognized amounted to TB5:4 SEK 46m (47), gross, at enue from the merger with Groupe ISB, as well as non-deductible impairment of December 31, 2020. The tax value of uncapitalized tax loss carryfor- surplus values. wards amounted to SEK 12m (12). In SCA’s opinion, it is not probable 2) Taxes attributable to prior periods for 2020 relate, for the most part, to reserva- that loss carryforwards for which no deferred tax was recognized will tions of tax expenses related to the ongoing tax audit in the Netherlands and be offset against future profits as these largely concern saved capital adjustments to previous tax assessments. Taxes attributable to prior periods for losses with a limited right of deduction against future capital gains. 2019 relate, for the most part, to adjustments to current tax for prior years as The expiry dates of these loss carryforwards are distributed as shown well as adjustments relating to temporary differences for land assets. 3) The changed tax rates are mainly attributable to the reduction in the Swedish in table TB5:4 . corporate tax rate. TB5:4 Loss carryforwards, gross, for which no deferred Current tax liability tax assets were recognized as per December 31, 2020 Current tax liability (+), current tax asset (–) Year of maturity SEKm SEKm 2020 2019 2021–2024 16 Value January 1 –96 110 2025 and later 5 TB5:1 Current tax expense 152 446 Indefinite life 25 CF TB5:2 Paid tax –35 –652 Total 46 Translation differences 1 –1 Changes relating to discontinued operations - 1 Other changes from acquisitions, divestments –9 - Value December 31 13 –96 BS of which current tax liability 14 9 BS of which current tax asset –1 –105
98 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
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C. EMPLOYEES
C1. PERSONNEL COSTS Shareholder Return) compared with a weighted index composed of OMX Stockholm 30 and the shares of a number of identified peer companies over a three-year period, where the maximum outcome Personnel costs requires a 5% better performance for the SCA share compared to the SEKm Note 2020 2019 peer group index over the multiple-year period. Payment of remunera- Salaries and remuneration –2,101 –2,037 tion for the satisfaction of long-term performance goals shall further be linked to a requirement of a certain investment by the manager in TC3:1A of which Executive the SCA share, with a three-year minimum holding requirement. Management –56 –50 of which Board C4 –8 –8 Variable remuneration in the form of project bonuses may be awarded Pension costs –228 –272 in individual cases. The performance goals shall, in such cases, be of which defined benefit pension costs C5 –77 –90 linked to the project (e.g. capex or production volume) in order to pro- of which other pension costs –151 –182 mote the completion of the project. The satisfaction of goals may be measured, and bonus may be paid, after one or several years. Such Other social security costs –614 –601 project bonus shall not exceed 40% of the total fixed annual salary Other personnel costs –3671) –87 during the relevant period. Total personnel costs –3,310 –2,997 1) Includes items related to discontinuation of SCA’s publication paper operations The company shall be able to refrain from paying variable remunera- of approximately SEK 300m. tion when required and possible under applicable law, if there is spe- cial cause and withholding the payment is necessary to serve the company’s long-term interests, including its sustainability. The com- SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA C2. PERSONNEL DATA pany shall also have the possibility to, under applicable law, reclaim variable remuneration paid on incorrect grounds.
Average number of employees Pension and other benefits 2020 2019 Pension benefits shall solely contain defined contribution pension Average number of employees 4,196 4,253 benefits, unless the manager is subject to defined benefit pension of whom men 3,311 3,425 under applicable collective agreement provisions. The planned retire- ment age is 65 years. The defined contribution pension shall have total of whom women 885 828 a maximum of 50% of the fixed annual salary.
Other benefits may include, for example, health insurance, company C3. REMUNERATION OF SENIOR EXECUTIVES car and wellness allowance.
In the event of termination of employment, a notice period of two years Guidelines for remuneration of senior executives shall typically apply if termination is initiated by the company, or one These guidelines shall apply to remuneration to Board members, the year, if termination is initiated by the manager. There will be no sever- President and CEO, vice President as well as other members of the ance pay. senior management. The guidelines do not apply to remuneration resolved by the general meeting. Decision-making process and reporting Issues regarding remuneration to senior executives shall be dealt with Principles for remuneration by the Board of Directors’ Remuneration Committee and, in case of A prerequisite for the successful implementation of the company’s the President and CEO, be decided by the Board of Directors. The business strategy and safeguarding of its long-term interests, Remuneration Committee’s tasks shall also include preparing the including its sustainability, is that the company is able to recruit, moti- Board of Directors’ decision to propose guidelines for remuneration to vate and retain qualified personnel through competitive remuneration senior executives, as well as monitoring and evaluating the application in line with market levels. To this end, the total remuneration is to cor- of these. The senior executives shall not participate in the Board of respond to market practice and be competitive on the senior manag- Directors’ nor the Remuneration Committee’s discussions of and res- er’s field of profession, as well as be linked to the manager’s responsi- olutions regarding remuneration-related matters in so far as they are bility, authority and performance. Remuneration may consist of fixed affected by such matters. salary, variable salary, other benefits and pension, jointly referred to as total remuneration. The company’s business strategy is available on In the preparation of the remuneration guidelines, salary and employ- page 18. ment conditions for the company’s other employees in Sweden shall be taken into account, including information on the employees’ total Variable remuneration income, the components of the remuneration and increase and growth Variable remuneration shall aim at promoting the company’s business rate over time, as well as the company’s equality policy. strategy and long-term interests, including its sustainability. Variable remuneration shall be based on the outcome in relation to short-term The Board of Directors shall prepare a remuneration report. and long-term goals, comprising respectively financial goals (or goals that contribute to financial goals) or to the value development of the Application of and deviation from the guidelines company’s share. It shall be linked to the fixed annual salary and be The Board of Directors may temporarily resolve to deviate from the capped. Variable remuneration is to be paid as cash remuneration and guidelines, in whole or in part, if in a specific case there is special shall not qualify for pension benefits. Neither the short-term nor long- cause for the deviation and a deviation is necessary to serve the com- term portion shall exceed 50% of the fixed annual salary. pany’s long-term interests, including its sustainability.
Short-term performance goals may include, for example, organic The guidelines do not take precedence over mandatory provisions growth, profit, cash flow, capital efficiency, return, health-safety- under applicable employment regulation or collective agreements. In environment, individual targets, or a combination thereof. addition, they are not applicable to agreements already signed.
Long-term performance goals shall be linked to the value develop- ment of the company’s Class B share, measured as TSR-index (Total
99 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
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Application of guidelines for remuneration of senior of the fixed salary. The President and CEO and other senior executives executives 2020 are entitled, as all Swedish white collar employees at SCA, to convert Fixed salary proceeds from variable pay programs into pension. This process is The fixed salary is to be linked to the senior executive’s responsibility cost neutral for SCA. and authority. Salaries are decided on an individual basis to a level, using an overall assessment of the executive’s total remuneration, that Pensions is deemed competitive and corresponds to market practice in the The senior executives are covered by a defined contribution pension, executive’s field of profession. where the company annually pays a premium of 40% of the fixed salary to the President and CEO and an annual premium of 30% of the Variable remuneration fixed salary to other senior executives. One senior executive has a The President and CEO and other senior executives are part of SCA’s defined benefit pension solution. The agreed pension premium for the program for variable remuneration where remuneration is paid President and CEO and other senior executives is paid as long as they according to SCA’s stipulations. The total variable remuneration can, are employed, though not longer than the month before the month the for the President and CEO, amount to a maximum of 100% of fixed senior executive reaches the age of 65. salary while the variable remuneration for other senior executives can amount to a maximum of 80% of fixed salary. Variable remuneration is Other benefits divided into a short and long-term portion. Other benefits pertain to company cars and any other benefits.
The short-term variable remuneration (Short Term Incentive, STI) can, Notice period and severance pay for the President and CEO, amount to a maximum of 50% of the fixed The agreement with the President and CEO stipulates a period of salary and for other senior executives to 40% of the fixed salary. The notice of 24 months if such notice is given by the company and a established STI targets in 2020 for the President and CEO and CFO period of notice of 6 months if notice is given by the President and focused on the Group’s EBITDA, profit for the period, operating cash CEO. If notice is given by the company, the President and CEO is obli- flow, industrial return on capital employed as well as development gated to be available to the company during the notice period if so relating to the number of workplace accidents that result in lost-time requested by the company. If the President and CEO, after written accidents (LTA). For senior executives with Central Staff functions, the approval from the company, assumes a new position during the period Manager for the support unit Sourcing & Logistics and for the Busi- of notice then, unless otherwise agreed, the new salary will be ness Area Manager of Forest, the STI targets focused on the Group’s deducted from the salary received during the notice period. The agree- EBITDA, profit, operating cash flow, industrial return on capital ment does not contain any stipulations with regard to severance pay. employed as well as development relating to the number of workplace accidents that result in lost-time accidents (LTA). For the Wood, Pulp Other senior executives have a notice period, if such notice is given by and Paper business area presidents, the STI targets relate to EBITDA, the company, of 12 months, which after five years of service, from their operating cash flow and return on capital employed as well as devel- latest employment, increases to 18 months. The executive’s notice opment relating to the number of workplace accidents that result in period toward the company is 6 months. One senior executive has dif- lost-time accidents (LTA). The Manager of Renewable Energy follows fering conditions, with a notice period, if such notice is given by the the Group-wide targets, but with the additional target of EBITDA for company, of 18 months, which after three years of service increases to the business area. 24 months. If requested by the company, this executive is obligated to be available to the company during the notice period. Any new salary The long-term portion (Long Term Incentive, LTI) can, for the President from other positions will be deducted from the salary received during and CEO, amount to a maximum of 50% of fixed salary and for other the notice period. The agreements have no stipulations with regard to senior executives to 40% of fixed salary, where half of the net outcome severance pay. (after tax deductions) is to be used to buy shares in SCA. The acquired shares may then not be sold within three years of the purchase of Preparation and decision process for remuneration shares in the relevant LTI program. During the year, the Remuneration Committee submitted recommen- dations to the Board regarding the principles for remuneration of The LTI goal is based on the performance of the company’s Class B Senior executives. The Board discussed the Remuneration Commit- share over a three-year period, measured using the TSR index com- tee’s proposal and decided on the basis of the Committee’s recom- SCA ANNUAL AND SUSTAINABILITY REPORT 2020 pared with a weighted index. The maximum outcome requires the per- mendations. The remuneration of corporate management for the fiscal formance target (TSR) for the company to be 5% better than the out- year was based on the Remuneration Committee’s recommendation. come for the peer group. Matters of remuneration of the President and CEO were resolved by the Board of Directors. The executives concerned did not participate Outcome, variable remuneration in remuneration matters pertaining to themselves. When it was For the President and CFO, STI resulted in 11.9% and 9.5%, respec- deemed necessary, the work of the Remuneration Committee was tively, of fixed annual salary for 2020 (23.8% outcome of maximum carried out with the support of external expertise. For information share of STI). For Central Staff Managers, STI resulted in 9.5% of fixed about the composition of the Remuneration Committee, see page 74. annual salary (23.8% outcome of maximum share of STI). STI resulted in variable remuneration corresponding to 6.8–22.8% of fixed annual Current guidelines salary for other senior executives with responsibility for a business The guidelines for determining salaries and other remuneration for area (between 17.1% and 57.1% outcome of maximum share of STI). senior executives as resolved by the 2020 Annual General Meeting The LTI target was achieved for 2018–2020, resulting in maximum out- (AGM), apply until the 2024 AGM, unless material changes are imple- come for the President and CEO and other senior executives, which mented prior to that. provided LTI compensation equivalent to 50% and 40% respectively
100 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
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TC3:1A Remuneration and other benefits during the year 2020
Variable Other Total salaries and SEK Fixed salary1) remuneration2) benefits remuneration President and CEO 9,250,000 5,725,7503) 130,078 15,105,828 Other senior executives (11 persons) 26,155,200 13,222,1284) 1,037,281 40,414,609 Total 35,405,200 18,947,878 1,167,359 55,520,437 1) Fixed salary consists of salary paid and vacation pay supplement for the period, and, where applicable, the value of housing benefits. 2) Variable remuneration covers the 2020 fiscal year but is paid in 2021. 3) Of which LTI program SEK 4,625,000. 4) Of which LTI program SEK 10,458,000.
Remuneration and other benefits during the year 2019
Variable Other Total salaries and SEK Fixed salary1) remuneration2) benefits remuneration President and CEO 8,500,000 4,479,5003) 126,125 13,105,625 Other senior executives (11 persons) 24,448,200 11,244,8494) 940,805 36,633,854 Total 32,948,200 15,724,349 1,066,930 49,739,479 1) Fixed salary consists of salary paid and vacation pay supplement for the period, and, where applicable, the value of housing benefits. 2) Variable remuneration covers the 2019 fiscal year but is paid in 2020. 3) Of which LTI program SEK 4,250,000. 4) Of which LTI program SEK 9,775,200.
The Senior executives category above includes 11 (11) persons, of which 8 (9) are men and 3 (2) are women. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
TC3:1B Pension costs 20201) Pension costs 20191)
SEK SEK President and CEO2) 3,859,438 President and CEO2) 3,552,317 Other senior executives (11 persons)2) 9,297,311 Other senior executives (11 persons)2) 8,621,740 Total 13,156,749 Total 12,174,057 1) The pension costs pertain to the costs that affected profit for 2020, excluding 1) The pension costs pertain to the costs that affected profit for 2019, excluding pension tax expense. pension tax expense. 2) Outstanding pension obligations to all senior executives, including the Presi- 2) Outstanding pension obligations to all senior executives, including the Presi- dent and CEO, amounted to SEK 47,966,300 (value as of December 31, 2020). dent and CEO, amounted to SEK 44,986,000 (value as of December 31, 2019). These primarily consist of defined benefit pension plans, including ITP. These primarily consist of defined benefit pension plans, including ITP.
C4. FEES TO BOARD MEMBERS IN THE PARENT COMPANY
Remuneration to non-executive Board members refers to the established fees approved at the 2020 Annual Generel Meeting (AGM), for the period until the next AGM in April 2021. No remuneration is paid to the President and CEO and other employees. Audit Remuneration Board fee Committee fee Committee fee Total SEK 2020 2019 2020 2019 2020 2019 2020 2019 Pär Boman 1,875,000 1,875,000 260,000 260,000 140,000 140,000 2,275,000 2,275,000 Charlotte Bengtsson 625,000 625,000 - - - - 625,000 625,000 Lennart Evrell 625,000 625,000 - - 110,000 110,000 735,000 735,000 Annemarie Gardshol 625,000 625,000 - - - - 625,000 625,000 Martin Lindqvist 625,000 625,000 260,000 260,000 - - 885,000 885,000 Lotta Lyrå 112,848 625,000 - - - - 112,848 625,000 Bert Nordberg 625,000 625,000 - - 110,000 110,000 735,000 735,000 Anders Sundström 625,000 625,000 - - - - 625,000 625,000 Barbara Milian Thoralfsson 625,000 625,000 360,000 360,000 - - 985,000 985,000 Total 6,362,848 6,875,000 880,000 880,000 360,000 360,000 7,602,848 8,115,000
At the end of the year, SCA’s Board consisted of 3 women and 6 men. Lotta Lyrå left the SCA Board in June at her own request.
101 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
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C5. REMUNERATION AFTER EMPLOYMENT
AP ACCOUNTING PRINCIPLES Defined contribution pension plans Defined benefit pension plans Plans where the employer’s obligation is limited to the premiums the company has undertaken to pay are classified as defined contribution Defined benefit pension plans are characterized by the fact that pay- plans. In these plans, it is the employee who bears the investment risk, ment is based on the period of employment and the employee’s salary meaning the risk that the invested assets could be insufficient to gen- at, or just prior to, retirement. The actuarial and investment-related erate the anticipated compensation. The Group’s payments relating to risks associated with defined benefit pension plans are carried by the defined contribution plans are recognized as an expense during the company. The defined benefit obligations are calculated annually by period the employees carry out the service to which the payment independent actuaries using the Projected Unit Credit Method. Calcu- relates. lation is based on actuarial assumptions. Actuarial assumptions com- prise the company’s best assessment of the variables that determine Severance pay the final cost for providing the benefits. The obligation is measured at Severance pay is recognized as a payroll expense in cases when the the present value of the anticipated future cash flows using a discount Group has an obligation to compensate employees whose employ- rate (refer to Key assessments and assumptions). Actuarial gains and ment was terminated early. losses (remeasurements) are recognized directly in equity under other comprehensive income in the period in which they arise. The recog- nized cost for the defined benefit plans includes personnel costs, as KAA KEY ASSESSMENTS AND ASSUMPTIONS well as net interest items. Net interest items comprise the discount rate calculated on the average net pension liability for the period, The calculation of recognized expenses and provisions for defined taking fee and remuneration payments into consideration. The differ- benefit pension plans, where the size of the future compensation is ence between the calculated discount rate on the plan assets and unknown and payment will occur far in the future, is dependent on SCA’s actual return on the plan assets is included in the remeasure- assumptions and assessments. The key assumptions and assess- ment of the defined benefit net liability (net asset) recognized in equity ments include the discount rate, future salary increases, inflation and under other comprehensive income. Past service costs are recog- life expectancy. SCA determines the discount rate based primarily on nized in the income statement in the period in which they arise. AA-rated corporate bonds issued in the currency in which the pay- ments will be made that match the duration of the obligations. If no The liability recognized in the balance sheet for defined benefit pen- such corporate bonds are available, government bonds or mortgage sion plans is the present value of the obligation on the balance sheet bonds are used. Inflation assumptions are based on a combination of date minus the fair value of the plan assets. Funded plans with net central bank targets, implicit market expectations and long-term ana- assets, meaning plans with assets exceeding obligations, are recog- lyst forecasts. Assumptions regarding salary increases are based on nized as a financial non-current asset provided they are not limited by market expectations and market research forecasts. Actuarial the asset ceiling in IAS 19. Other pension plans, which are not fully assumptions are presented in TC5:5 . The sensitivity of the recog- funded or unfunded, are recognized as Provisions for pensions. nized provision with respect to key actuarial assumptions is described in TC5:6 . In certain countries, pension payments are subject to taxes or fees. In such cases, these are included in the calculation of the obligation for the defined benefit pension plans. These taxes or fees are recognized as an expense in the income statement, except in cases where they are attributable to actuarial gains or losses, in which case they are rec- ognized directly in equity under other comprehensive income, as are the actuarial gains or losses. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
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Provisions for pensions and similar obligations Surpluses in funded plans recognized as financial non-current assets amounted to BS SEK 1,329m (1,019) on the balance sheet date and SEKm 2020 2019 provisions for pensions totaled BS SEK 530m (522). Defined benefit TC5:2 Defined benefit obligations 2,087 1,913 obligations include obligations in an amount of SEK 164m (171) per- TC5:3 Fair value of plan assets –3,778 –3,296 taining to unfunded plans. TC5:4 Effect of asset ceiling 892 886 SCA has both defined contribution and defined benefit pension plans TC5:1 Provision for pensions, net –799 –497 in a number of subsidiaries. The most significant defined benefit pension plan is the pension plan in Sweden, as described in TC5:1 .
TC5:1 Provisions for pensions and similar obligations per plan
Commitments Duration of Paid-up pension Plan assets, Effect of asset obligation, SEKm Active policies Pensioners Total fair value ceiling Net years Country Sweden 790 413 542 1,745 –2,735 - –990 20 Other 209 72 61 342 –1,043 892 191 12 Total 999 485 603 2,087 –3,778 892 –799
Sweden TC5:2 Defined benefit obligations The ITP2 plan (supplementary pensions for salaried employees) 2020 REPORT SUSTAINABILITY AND ANNUAL SCA SEKm 2020 2019 encompasses employees born before 1979 and is a defined benefit plan that provides retirement pension based on final salary. The ITP2 Value January 1 1,913 2,010 plan provides pension as a percentage of various salary intervals. Current service cost 211 90 Interest expense 31 44 The pension is reduced proportionately if the total period of service is Pension tax expense 9 16 less than 30 years. The ITP2 plan is managed by a fund, and the com- Gains (–) and losses (+) on reductions pany may compensate itself using any surpluses in the plan assets. and settlements –30 - Other Acquisitions and divestments - –215 In addition to those described above, there are a number of minor Benefits paid –62 –61 pension obligations, including in Belgium, Germany and Sweden. Pension taxes paid –4 –2 Some of these plans are funded. Remeasurement: financial assumptions 127 103 Costs for the period for defined benefit plans Remeasurement: experience-based assumptions –43 8 Pension taxes pertaining to remeasurement –64 –87 SEKm 2020 2019 Translation differences –1 7 Current service cost, after deduction for premiums paid by the employees –211 –90 Value December 31 2,087 1,913
Pension tax expense –9 –16 Remeasurements in the defined benefit obligations comprise changes Net interest 5 1 in financial assumptions, such as changes to the discount rate, any Pension costs before effects of reductions and changes in demographic assumptions and experience-based devia- settlements –215 –105 tions. Experience-based deviations include unexpectedly high or low Reductions and settlements 30 - employee turnover. Pension costs after effects of reductions and settlements –185 –105
103 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
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TC5:3 Fair value of plan assets TC5:4 Effect of asset ceiling
SEKm 2020 2019 SEKm 2020 2019 Value January 1 886 685 Fair value January 1 –3,296 –2,797 Interest expense 14 15 Interest income –50 –61 Other changes to asset ceiling –8 186 Acquisitions and divestments - 188 Value December 31 892 886 Contributions by plan participants - –1 Contributions by the employer –15 –17 Effect of asset ceiling pertains to funds in one Swedish foundation that can be used for possible future undertakings for early retirement for Benefits paid, excluding settlements 55 51 certain categories of employees. Return in excess of recognized interest income –473 –654 Translation differences 1 –5 TC5:5 Principal actuarial assumptions
Fair value December 31 –3,778 –3,296 Sweden Eurozone 2020 The plan assets are distributed according to the following Discount rate 0.89 0.35 classes of assets 2020: Expected salary increase rate 2.56 1.97 Expected inflation 1.36 0.77 Shares and mutual funds, 93% (SEK 3,525m) Life expectancy, men1) 22 20 Life expectancy, women1) 25 24 Interest-bearing securities, 6% (SEK 215m) 2019 Real estate fund 1% (SEK 30m) Discount rate 1.51 0.78 Other 0% (SEK 8m) Expected salary increase rate 2.88 2.48 Expected inflation 1.63 1.23 The plan assets are distributed according to the following Life expectancy, men1) 22 21 classes of assets 2019: Life expectancy, women1) 25 24 1) Life expectancy, expressed in years, for an individual currently aged 65.
Shares and mutual funds, 91% (SEK 2,998m) TC5:6 Change of obligation, increased obligation (–)
Interest-bearing securities , 7% (SEK 226m) SEKm
Other, 2% (SEK 72m) Discount rate +0.25% 96 Price inflation, incl. salary inflation +0.25% –110 Longevity +1 year –90 100% (98) of the plan assets on the balance sheet date were traded on The sensitivity analysis is calculated by changing one assumption active markets in which market quotations are used for the valuation of while the others remain constant. assets. As in the preceding year, no financial instruments issued by SCA are included in the fair value of plan assets at December 31, 2020. Other disclosures Multiemployer plans SCA has obligations for disability and family pensions for salaried employees in Sweden, secured through insurance with the insurance company Alecta. These benefits are reported as defined contribution SCA ANNUAL AND SUSTAINABILITY REPORT 2020 plans since there is no basis for allocating the obligations, plan assets and costs to the individual companies covered by the plan.
Budgeted contributions The budgeted contributions for the company’s defined benefit pension plans for 2021 were calculated at SEK 53m. Contributions for multi employer plans for 2021 were calculated at SEK 9m.
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D. OPERATING ASSETS AND LIABILITIES
D1. INTANGIBLE FIXED ASSETS
AP ACCOUNTING PRINCIPLES which the allocation pertains. During the period, the initial liability for Goodwill emission allowances received is dissolved over the income statement as income in pace with actual CO emissions. If the emission allow- Goodwill arises in connection with business combinations where the 2 ances received do not cover actual emissions, SCA makes a provision consideration transferred exceeds the fair value of the acquired net for the deficit valued at the market value on the balance sheet date. assets. Goodwill is recognized at cost less accumulated impairment Sales of surplus emission allowances are recognized as income on the and is an intangible asset with an indefinite useful life. This means that delivery date. goodwill is not amortized, but rather is tested annually for impairment. All goodwill is allocated to the cash-generating units that to benefit from If the market price of emission allowances on the balance sheet date is the synergies from the business combination. In connection with the less than recognized cost, any surplus emission allowances that are sale of Group companies, goodwill attributable to the divested unit is not required to cover emissions made are impaired to the market included in the capital gain. Goodwill that arises in acquisitions of asso- price. In conjunction with this, the remaining part of the deferred ciated companies or joint ventures is included in the carrying amount of income is recognized as income by a corresponding amount and the respective associate or joint venture. The cash-generating units cor- therefore no net effect occurs in the income statement. The emission respond to the operating segments in accordance with Note B1. allowances are used as payment in the settlement with the Swedish Other intangible fixed assets state regarding liabilities for actual CO2 emissions. Intangible assets also include patents, licenses and other similar rights. Acquired assets of this type are recognized at cost and are SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA amortized on a straight-line basis during their anticipated useful life, which varies between 3 and 20 years. Intangible fixed assets Other intangible Customer relations are measured at fair value at the time of the acqui- Goodwill assets sition. The value of these customer relations is amortized over their SEKm 2020 2019 2020 2019 useful life, which is considered to be between 3 and 15 years. Accumulated costs 24 46 583 445 Accumulated depreciation - - –251 –242 Research expenditure is recognized as an expense as incurred. Identi- fiable expenditure for development of new products and processes is Accumulated impairment –24 –43 –53 –32 capitalized to the extent it is expected to provide future economic Total - 3 279 171 benefits. In cases in which it is difficult to separate the research phase Value January 1 3 3 171 101 from the development phase in a project, the entire project is treated Investments - - 143 86 as research and expensed immediately. Capitalized expenditure is Sales and disposals - - –3 - amortized on a straight-line basis from the date when the asset is in a location and in the condition required to use it in the manner intended Company divestments1) –3 - –1 - by management. Reclassifications - - 7 - Depreciation - - –18 –16 Impairment testing Impairments - - –20 - Goodwill is tested annually for impairment. When testing for impair- ment, the assets are grouped in cash-generating units in accordance Value December 31 - 3 279 171 with SCA’s operating segments in Note B1. The test compares the car- TD1:1 Emission allowances, rying amounts of the cash-generating units with the recoverable net value - - 41 37 amounts. The recoverable amount of each cash-generating unit is BS Value, December 31 including determined by discounting future cash flows in order to determine emission allowances - 3 320 208 their value in use. The calculation of future cash flows is based on the 1) Company divestments pertain entirely to the divestment of SCA Wood UK Ltd. strategic plans adopted by Executive Management for the next three years. The carrying amount for the cash-generating unit includes Impairment testing goodwill with indefinite useful lives and assets with definite useful Annual testing for impairment of goodwill is carried out in the fourth lives, such as non-current assets and working capital. quarter. During the final quarter of 2020, SCA divested its remaining goodwill, and therefore no impairment testing took place. The dis- The value of depreciated assets is tested for impairment when there count rate before tax used in the impairment testing of goodwill was are indications that the carrying amount might not be recoverable. In 7.61% in 2019. No impairment was carried out during the year. cases in which the carrying amount of an asset exceeds its estimated recoverable amount, an impairment loss is recognized on the asset In addition to annual impairment testing of the cash-generating units, down to the recoverable amount. individual assets are tested to determine whether any impairment is needed. During the period, intangible fixed assets entirely attributable An impairment loss recognized earlier is reversed, if the reasons for to publication paper operations was impaired by SEK –20m. the impairment no longer exist. However, a reversal is not higher than the carrying amount before impairment loss. Impairment losses on TD1:1 Emission allowances goodwill are never reversed. SEKm 2020 2019 Emission allowances and costs for carbon dioxide Accumulated costs 37 37 emissions Total 37 37 SCA participates in the European system for emission allowances and Value January 1 37 24 receives a permit to emit a specific volume of carbon dioxide (CO ) 2 Emission allowances received 129 124 during a calendar year for each facility in which operations requiring a Sales –95 –94 permit are conducted. Emission allowances relating to CO2 emissions are recognized as an intangible asset and as deferred income (liability) Settlement with the government –30 –17 when they are received. Emission allowances are received free of Value December 31 41 37 charge and measured and recognized at market value as of the date to
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D2. TANGIBLE FIXED ASSETS
AP ACCOUNTING PRINCIPLES Property, plant and equipment is recognized, with the exception of Depreciation and impairment land assets relating to forest assets, at cost less accumulated depre- Land is not subject to depreciation. Buildings, land improvements, ciation and any impairment. In cases where an investment in foreign machinery and equipment are depreciated on a straight-line basis currency has been recognized using hedge accounting, the gain/loss over the useful lives of the assets. If, at accounting year-end, there is from the hedge is recognized as part of the acquisition cost. The cost an indication that property, plant and equipment has declined in value, of properties and production facilities included in major projects impairment testing is carried out. includes costs for running-in and start-up. The sale of products of suf- ficient quality from the running-in period is recognized as net sales. Assessed useful lives Borrowing costs are included in the cost of investments exceeding Number of SEK 250m that take more than 12 months to complete. Expenditure years for repairs and maintenance is expensed directly in the income state- Pulp and paper mills, sawmills 10–25 ment. Income from the sale of products manufactured during the com- pletion of the facility are recognized over the income statement. Other machinery 7–18 Tools 3–10 Land assets attributable to forest assets are recognized on a separate Vehicles 4–5 line in the balance sheet and are included in Note D3 Forest assets. Buildings 15–50 Energy plants 15–30 Computers 3–5 Office equipment 5–10 Harbors and railways 20–30 Land improvements 10–20
Carrying amounts Total property, Land and land Machinery and Construction in plant and equip- Buildings improvements1) equipment4) progress2)3)4) ment SEKm 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Accumulated costs 5,731 5,764 3,557 3,440 31,219 30,916 3,408 1,691 43,915 41,811 Accumulated depreciation –2,852 –2,752 –1,972 –1,841 –18,475 –17,685 - - –23,299 –22,278 Accumulated impairment –259 –147 –84 –85 –1,625 –1,110 –7 –7 –1,975 –1,349 Total 2,620 2,865 1,501 1,514 11,119 12,121 3,401 1,684 18,641 18,184 Value January 1 2,865 3,085 1,514 1,565 12,121 12,498 1,684 565 18,184 17,713 Investments 8 37 105 125 206 420 2,250 1,666 2,569 2,248 Sales and disposals –1 –1 –1 - –11 –5 - - –13 –6 Company divestments –17 –203 –8 –5 –48 –72 - - –73 –280 Reclassifications 9 81 24 42 503 410 –543 –533 –7 - SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Depreciation –131 –142 –132 –132 –1,135 –1,132 - - –1,398 –1,406 Impairments –112 - –1 –82 –514 –2 - - –627 –84 Translation differences –1 8 - 1 –3 4 10 –14 6 –1 BS Value December 31 2,620 2,865 1,501 1,514 11,119 12,121 3,401 1,684 18,641 18,184 1) Land and land improvements include forest roads valued at SEK 910m (901). Investments for the year in forest roads amounted to SEK 91m (90) and depreciation for the year to SEK 82m (80). 2) During the period, interest was capitalized in construction in progress in an amount of SEK 21m (0). The average interest rate used was 1% (1). 3) Of the outgoing value of construction in progress and advance payments for property, plant and equipment, SEK 2,324m (922) pertains to the investment project in Obbola. 4) In 2020, machinery and equipment includes investment grants of SEK 2m and investment grants in construction in progress of SEK 8m.
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D3. FOREST ASSETS
AP ACCOUNTING PRINCIPLES The value of land assets constitutes the residual amount between the total value established as the total market value and the value of the Forest assets are divided into standing timber and land assets. biological assets based on discounted cash flows. The value of land Standing timber is recognized as a biological asset in accordance with assets was further supported by discounting cash flow linked to land IAS 41 Agriculture. Land assets are recognized as property, plant and assets. Land assets relating to forest assets are recognized at fair equipment in accordance with IAS 16 Property, plant and equipment. value in accordance with IAS 16.31, and are recognized on a separate The method for valuing forest assets was changed in 2019. The impact line in the balance sheet under forest assets. The change in value per- and a detailed description are available on page 105, Note D3, of taining to land is recognized as other comprehensive income and SCA’s 2019 Annual Report. does not impact profit for the year. The total value of the forest assets is based on forest transactions in the areas where SCA owns forest assets. The market valuation is KAA KEY ASSESSMENTS AND ASSUMPTIONS based on statistics of transactions, which are available from several market sources. SCA uses refined property data from external spe- SCA has based its valuation of forest assets in Sweden on forest cialists for the valuation. The statistics can be viewed as market-cor- transactions in the areas where SCA owns forest assets. The calcu- roborated inputs in accordance with measurement level 2. In the case lated market price is based on forest transactions over the last three of SCA, inputs to the valuation of forest assets that are used in accor- years. The market price is a weighted three-year average that in 2020 dance with IFRS 13 are recognized at various levels in the evaluation was SEK 291 (276)/m3fo and is used to determine the total average hierarchy. For a description of the different measurement levels, refer value per m3fo of SCA’s forest assets in Sweden. The market in the to Note E1. The valuation is recognized in its entirety as level 3. Cer- Baltic states is considered comparable with SCA’s holdings in Sweden tain adjustments are made to refine the market-corroborated inputs in terms of price, and is therefore measured at the same value per using unobservable inputs. In addition to this, an assessment is car- m3fo. The distribution of value between biological assets and land in ried out of the transaction periods to be included in the calculation of the Baltic states takes place using SCA’s own discounted cash flow an average price. No transfers have taken place between the mea- model since the production cycles differ. 2020 REPORT SUSTAINABILITY AND ANNUAL SCA surement levels during the year. If a transfer had taken place between the measurement levels, this would be undertaken at year-end. A new sustainable harvesting calculation was drawn up in 2020 based on the forest survey from 2019 that indicated higher growth in the In combination with market transactions, and to determine the fair forest than earlier surveys. This resulted in a new harvesting plan that value of the Group’s biological assets, expected future cash flows contains an increase in the harvesting level from SCA’s own forest, from the assets were also discounted. The calculation to establish the where SCA intend to increase harvesting to 5.4 million m3sub in 2025, value of biological assets is based on existing, sustainable harvesting which compares with the previous plan where the level was 4.0 million plans and assessments regarding growth, timber prices, harvesting m3sub for the same period. As of December 31, 2020, timber volume is and silviculture costs and selling expenses. Environmental restrictions estimated to amount to approximately 252 million m3fo in Sweden. and other limitations are taken into account which mean that the Added to this is approximately 5 million m3fo of timber volume in the assets cannot be fully utilized in the best possible manner. The calcu- Baltic states. lation is performed for a production cycle for biological assets that SCA estimated to average 100 years. The change in value is recog- TD3:1 describes the sensitivity of the carrying amount with respect nized in the income statement on the line item for change in value in to key assumptions. biological assets.
Forest assets Land assets
SEKm 2020 2019 SEKm 20201) 20191) Forest assets in Sweden1) 73,387 68,723 Value January 1 20,170 1,000 Forest assets in the Baltic states2) 1,513 959 Acquisition of land assets 145 286 Total value of biological assets and land assets 74,900 69,682 Divestment of land assets –5 –9 Deferred tax related to forest assets 14,977 13,977 Revaluation of land assets at fair value 3,314 18,893 1) The fair value of SCA’s forest assets in Sweden in 2020 was based on a timber BS Value of land assets, December 31 23,624 20,170 volume of approximately 252 million m3fo multiplied by the market price of SEK Acquisition cost 1,657 1,501 291/m3fo. 2) The fair value of SCA’s forest assets in the Baltic states in 2020 was based on a 1) Following the acquisition of forest assets in Sweden, the fair value has been timber volume of approximately 5 million m3fo multiplied by the market price of distributed such that 31% (31) of the value has been allocated to land assets SEK 291/m3fo. and 69% (69) to biological assets. For the acquisitions made in Estonia and Latvia, 25% (25) of the acquisition price has been allocated to land assets and Biological assets 75% (75) to biological assets. SEKm 20201) 20191) Value January 1 49,512 32,065 Acquisition of biological assets 397 709 Divestment of biological assets –13 –21 Other changes in fair value 2,598 1,807 Change due to felling –1,218 –1,090 Change due to new method and new assumptions - 16,042 BS Value of biological assets, December 31 51,276 49,512 1) Following the acquisition of forest assets in Sweden, the fair value has been distributed such that 31% (31) of the value has been allocated to land assets and 69% (69) to biological assets. For the acquisitions made in Estonia and Latvia, 25% (25) of the acquisition price has been allocated to land assets and 75% (75) to biological assets.
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The change in the fair value of biological assets and the change due to TD3:1 Sensitivity analysis harvesting are both recognized as a net value in the income statement Change in on the line Change in value in biological assets and amount to SEK value before 1,262m (16,759). Additionally, SCA capitalized replanting costs. SEKm Change in assumption tax, 2020 Market price based Price change 5% on a total The valuation of biological assets and land assets was based on on market statistics1) volume of 257 million m3fo 3,745 market statistics and discounted cash flows. For the current year’s Forest portfolio’s valuation of biological assets, the same valuation model was used as timber volume1) 3 million m3fo (approx. 1%) 873 in the previous year using a yield requirement of 3.6% (3.6) after tax. 1) The sensitivity figures are based on the market price, which for 2020 has been set to SEK 291/m3fo. Sensitivity figures are based on the total value of forest When cash flow was discounted, estimated income and expenses assets. were adjusted by an annual inflation rate of 2%. Assumptions regarding future price and cost levels are based on the outcome for Market price prior years adjusted for inflation. The valuation assumes an average Historical market price (based on three-year average 2016–2020) wood price of SEK 450 (442) per solid cubic meter under bark (m3sub). (SEKm3fo) Annual harvesting in 2020 was 4.8 million m3sub and is expected to rise over the expected future production cycle. 300 291 250 On average, 85% of harvesting is final harvesting and 15% thinning. Of this, 56% comprises sawlogs and 44% pulpwood. 200
150 SCA’s forest holdings are made up of approximately 2.6 million hect- ares of forest assets primarily in northern Sweden, of which approxi- 100 mately 2.0 million is productive forest land. SCA also owns just over 40,000 hectares of forest assets in Estonia and Latvia. Growth 50 amounts to approximately 10.5 million m3fo per year, gross, on pro- 0 ductive forest area. Net growth, meaning growth after harvesting and 2016 2017 2018 2019 2020 natural losses, is estimated at 3.2 million m3fo per year in Sweden. Harvesting in 2020 amounted to approximately 4.8 million m3sub (4.4). Harvesting Harvesting 2015–2020 and planned harvesting 2021–2121 Forest assets (1,000m3sub/year) 20201) 20191) Carrying amount SEK/hectare forest assets 36,989 34,412 7,000 Carrying amount SEK/m3fo 291 276 6,000 1) The values are calculated based on productive forest area. 5,000 4,000 3,000 2,000 1,000 0
2020
2015–2019 2021–20292030–20392040–20492050–20592060–20692070–20792080–20892090–20992100–21092110–2121
HarvestingSkörd 2015–2020 2015–2018 PlannedPlanerad harvesting skörd 2019–2114 2021–2121 SCA ANNUAL AND SUSTAINABILITY REPORT 2020
D4. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
AP ACCOUNTING PRINCIPLES Lessee lease payments linked to index or price and amounts expected to be A contract is or contains a lease agreement if the contract conveys the paid by the lessee in accordance with residual value guarantees. right to determine the use of an identifiable asset for a specified period Lease payments include the exercise price for a purchase option if the of time in return for compensation. When an agreement is entered into, lessee is reasonably certain of exercising the option and financial pen- a company must consider whether the contract is or contains a lease alties to be paid on termination of the lease if the lease term reflects agreement. SCA’s lease agreements primarily consist of trains, office that the lessee will utilize this option. Variable lease payments not premises, terminals, warehouses, other buildings, various transport linked to price or interest are expensed. vehicles and company cars. Leases are recognized in accordance with IFRS 16 Leases, which means a lessee must recognize a right- Lease payments are to be discounted by the interest rate implicit in of-use asset and a lease liability in the balance sheet when a lease the lease contract, if it can be readily determined. In cases where the comes into effect. The standard includes exemptions for short-term rate cannot be readily determined, lease payments are discounted leases (leases with a lease term of 12 months or less) and leases using SCA’s incremental borrowing rate. A substantial part of SCA’s where the underlying asset has a low value. SCA uses the available lease liability has been discounted using the incremental borrowing exemption, which means short-term leases and leases for which the rate. The incremental borrowing rate is to reflect the interest rate a underlying asset has a low value are not recognized in the balance lessee would have to pay for financing through loans for the equivalent sheet. Leases covered by the exemption largely consist of photo- period with similar collateral, for the right-of-use of an asset in a sim- copiers and coffee machines. ilar economic environment. SCA has prepared a method for deter- mining the incremental borrowing rate, which includes the credit rating On the date of initial application for the lease, the lease liability is mea- of the individual subsidiaries, the economic environment, contract sured at the present value of outstanding lease payments. This duration of the lease and class of asset. Updating the incremental encompasses fixed fees after deductions for any benefits, variable borrowing rate is performed on a regular basis of new and modified
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contracts. After the date of initial application, the lease liability KAA KEY ASSESSMENTS AND ASSUMPTIONS increases by the interest on the lease liability but decreases as lease IFRS 16 stipulates that when entering into any agreement an assess- payments are made. The lease liability is remeasured using a modified ment must be made of whether the contract is or includes a lease. discount rate in cases where the lease term changes or if the assess- SCA assesses all contracts entering into force on an individual basis ment of an option to purchase the underlying asset changes. The with the exception of contracts for company cars, which are assessed lease liability is remeasured using an unchanged discount rate if the as a portfolio. In cases where a lease contract includes an identifiable amount expected to be paid in accordance with the residual value asset, but where SCA is not entitled to receive essentially all benefits guarantees is changed, or the future lease payments are changed due from use of the asset or is not entitled to control use of the identified to changes in price or index. Lease liabilities are classified as financial asset, SCA’s opinion in all instances is that the contract is not, nor liabilities, see Note E4. does it contain, a lease agreement. A contract can include compo- nents that are not to be classified as lease components, such as On the date of initial application for the lease, the date on which the included services, personnel and administration. SCA has chosen to underlying asset becomes available for use, a right-of-use asset is exclude non-lease components for all leases. recognized. Right-of-use assets are measured at cost, which includes the sum of the original lease liability, any initial direct fees and an esti- The lease term is defined as the non-cancellable lease period together mate of any recovery expenses. Furthermore, cost includes all lease with periods that may be covered by an option to extend a lease if the payments made on or before the date of initial application, after lessee is reasonably certain of utilizing this alternative and periods deductions for any benefits received in conjunction with signing the covered by an option to terminate the lease if the lessee is reasonably lease. After the date of initial application, the right-of-use asset is certain of not utilizing this alternative. SCA has a number of contracts measured at cost less accumulated depreciation and any accumu- where the contractual terms clearly encompass extension periods. lated impairment, taking into account adjustments for any revaluation The right to an extension has been utilized when SCA with reasonable of the lease liability. Right-of-use assets are depreciated over their assurance can determine that the contract will be extended. SCA has useful life, if there is reasonable certainty that a purchase option will not utilized the right to an extension for leases where the lease period be exercised. Otherwise, the lessee must depreciate the right-of-use exceeds ten years as the assessment is that “reasonable assurance” from the date of initial application until which ever occurs first of the cannot be applied to such a long interval. The following extension end of the useful life or the end of the lease term. An assessment of 2020 REPORT SUSTAINABILITY AND ANNUAL SCA periods have been utilized for contracts that include a right to an useful lives is presented in table TD4:1 . extension for an unspecified period and where SCA with reasonable assurance will utilize this right: forklifts and other work vehicles three Impairment is addressed in Note D2. years, property five years. A number of contracts include an option to Lessor withdraw from the agreement early, but where an early termination would trigger a termination fee, the size of which is dependent on When SCA is lessor, each contract is classified as either an operating when the agreement is terminated. SCA has not considered the option or finance lease. A lease is classified as finance if the contract means to withdraw from an agreement early as there is no financial incentive the economic benefits and risks normally associated with ownership given the often significant termination fee. In cases where SCA and its of the underlying asset are essentially transferred. A lease is classified counterparty are each independently entitled to terminate a lease as operating if the economic benefits and risks associated with own- without permission from the other party and without a substantial ership of an underlying asset are essentially not transferred. Lease financial penalty, SCA has considered the agreement as unenforce- payments are recognized as income on a straight-line basis over the able. In cases where only the counterparty was entitled to terminate contract term. an agreement, the contract’s period of notice has constituted the lease term. When SCA has been solely entitled to terminate an agree- At the end of 2020, SCA signed an agreement concerning the sublet- ment, the lease term in the majority of cases was assessed as 3–5 ting of a property. The right-of-use under the sublet is classified as an years, as described above. operating lease. The classification is primarily based on the master agreement entered into by SCA and not on the basis of the underlying In applicable cases, residual value guarantees were taken into asset. account when determining the lease payments.
Leases where SCA is lessee in accordance with IFRS 16 Carrying amounts right-of-use assets and lease liabilities Right-of-use assets Properties, Work Company Lease SEKm real estate Trains vehicles cars Other Total liabilities4) Value January 1, 2020 339 284 141 51 26 841 854 Lease payments1) ------–203 Depreciation –56 –35 –43 –40 –10 –184 - Interest expenses ------30 Additional and remeasured contracts2) 22 - 30 42 9 103 108 Terminated contracts3) –6 - –11 –4 0 –21 –26 Translation differences –10 - 0 0 - –10 –12 BS Value December 31, 2020 289 249 117 49 25 729 751 1) During the year, SCA was not allocated any discounts related to Covid-19. 2) Additional contracts amount to SEK 74m and remeasurement of existing contracts to SEK 29m. The remeasurement of leases mainly concerns the extension of the lease period for a number of rental contracts and indexed rental payments. 3) Terminated contracts are mainly attributable to the divestment of SCA Wood UK Ltd. 4) Of the total lease liability at year-end, SEK 603m is classified as non-current financial liabilities and SEK 148m as current financial liabilities. An analysis by maturities is provided in Note E4.
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Right-of-use assets Properties, Work Company Lease SEKm real estate Trains vehicles cars Other Total liabilities3) Value January 1, 2019 622 319 196 50 36 1,223 1,211 Lease payments ------–204 Depreciation –66 –35 –48 –31 –9 –189 - Interest expenses ------46 Additional and remeasured contracts1) 86 - 17 34 - 137 137 Terminated contracts2) –318 - –25 –2 –1 –346 –352 Translation differences 15 - 1 - - 16 16 BS Value December 31, 2019 339 284 141 51 26 841 854 1) Additional contracts amount to SEK 90m and remeasurement of existing contracts to SEK 47m. The remeasurement of leases mainly concerns the extension of the lease period for planing mills in the UK and the extension of the lease period for a fuel pellets plant in Luleå. 2) Terminated contracts mainly relate to the divestment of the logistics terminal in Rotterdam and the merger of SCA Wood France and Groupe ISB. 3) Of the total lease liability at year-end, SEK 698m is classified as non-current financial liabilities and SEK 156m as current financial liabilities. An analysis by maturities is provided in Note E4.
TD4:1 Assessed useful lives D5. INVENTORIES Number of years Properties, real estate 3–20 AP ACCOUNTING PRINCIPLES Trains 10 Inventories are measured at the lower of cost and net realizable value. Work vehicles 3–12 Cost is calculated by applying the first-in, first-out (FIFO) or the Company cars 3–4 weighted average cost principle. The cost of inventories and work in progress includes raw material costs, direct labor, other direct Other 2–8 expenses and production-related overheads, based on a normal capacity utilization. Carrying amounts income statement The net sales price is the calculated sales price received for normal SEKm 2020 2019 business transactions less calculated marketing and sales costs. Depreciation right-of-use assets –184 –189 Interest expenses, lease liability –30 –46 Felling rights for standing timber are measured at contract prices, Lease payments related to low value leases –6 –5 which on average have not exceeded the lower of net realizable value Lease payments related to short-term leases –57 –55 and cost. Variable payments –15 –14 Terminated contracts - 6 Total –292 –303 Inventories
Cash flow SEKm 2020 2019 SCA recognizes a cash flow effect arising from leases of SEK 198m Raw materials and consumables 1,477 2,018 SCA ANNUAL AND SUSTAINABILITY REPORT 2020 (280). The cash flow effect includes payments related to contracts that Spare parts and supplies 631 693 include a lease and payments related to low value leases, short-term Products in progress 84 81 leases and variable payments. Finished products 1,017 1,364 Operating leases where SCA is lessor Felling rights 835 858 The agreement signed concerning the subletting of a property has a BS Total 4,044 5,014 lease period that will expire in 19 years. Rental income for the year amounts to SEK 1m. The leasing contract includes no variable pay- Impairment of inventory amounted to SEK 8m (14) during the period. ments. Future minimum lease payments for operating leases mature according to the table below:
SEKm 2020 Within 1 year 7 Between 1 and 5 years 37 Later than 5 years 90 Total 134
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D6. OTHER CURRENT RECEIVABLES D8. OTHER PROVISIONS
AP ACCOUNTING PRINCIPLES AP ACCOUNTING PRINCIPLES Derivatives Provisions are recognized in the consolidated balance sheet when Derivatives are classified as a financial instrument, refer to Note E1. there is a legal or informal obligation arising from events that have However, SCA has chosen to define derivatives used to hedge oper- occurred and it is probable that payments will be required to settle the ating items as operating derivatives, which is why they are recognized obligation. It must also be possible to reliably estimate the amount to on operating lines in the balance sheet. be paid. The provision is valued at the present value of the anticipated future expenditure to settle the obligation.
A provision for restructuring measures is recognized when the Group Other current receivables has established a detailed plan and either implementation has begun or the main features of the measures have been communicated to the SEKm 2020 2019 parties involved. Restructuring costs include, for example, costs for VAT receivables 231 243 plant closures, impairment of production machinery or costs for per- Accrued income 25 35 sonnel reductions. Prepaid expenses 216 168 Receivables from authorities 48 43 Derivatives 319 100 Other provisions Receivables from associated companies 33 15 Efficiency Environ- Discon- Other receivables 115 186 SEKm programs ment tinuation Other Total BS Total 987 790 Value
January 1, 2020 4 55 - 56 115 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Provisions 0 28 761 1 790 D7. OTHER LIABILITIES Utilization –1 –29 –3 –34 –67 Translation differences - - –2 –2 –4 AP ACCOUNTING PRINCIPLES Value December 31, 2020 3 54 756 21 834 Derivatives Derivatives are classified as a financial instrument, refer to Note E1. However, SCA has chosen to define derivatives used to hedge oper- Provisions comprise: ating items as operating derivatives, which is why they are recognized BS Long-term component 90 on operating lines in the balance sheet. BS Short-term component 744
Of the provisions for the period for environment, SEK 28m pertains to a liability for CO2 emissions, which will be paid out in 2021. Provisions Other liabilities for the period for discontinuation pertain to non-recurrent costs arising from the decision to exit publication paper operations at the SEKm 2020 2019 Ortviken paper mill. Just over half of total provisions for the discontin- Other non-current liabilities uation pertain to personnel costs, less than 20% decommissioning Derivatives 60 54 costs at the Ortviken paper mill and the remainder are other non- Other non-current liabilities 75 77 recurring costs related to the discontinuation. Other provisions consist mainly of provisions for pensions and provision for pension tax linked BS Total 135 131 to capital insurance. Other provisions utilized in 2020 relate, for the Of which items that fall due for payment most part, to the dissolution of the provisions for pensions and closure later than within five years - - of the wood processing plant in France. Other current liabilities Derivatives 185 66 TD7:1 Accrued expenses and D9. TRADE PAYABLES prepaid income 799 709
Other operating liabilities 216 269 SCA’s trade payables amounted to BS SEK 3,319m (3,336) on BS Total 1,200 1,044 December 31, 2020. SEK 1,549m (1,683) of the total trade payable was related to standing forest, referred to as standing forest timber for TD7:1 Accrued expenses and prepaid income sale. The seller of standing timber has the right to almost immediate payment once the timber is harvested, though a payment plan can be SEKm 2020 2019 used to spread payments over a longer period. Accrued social security costs 105 107 Accrued vacation pay liability 110 105 Other liabilities to personnel 132 113 Bonus and discounts to customers1) 65 109 Other items 387 275 Total 799 709 1) The principles for recognition of revenue from contracts with customers are described in Note B1.
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E. CAPITAL STRUCTURE AND FINANCING
E1. FINANCIAL INSTRUMENTS BY CATEGORY AND MEASUREMENT LEVEL
AP ACCOUNTING PRINCIPLES Financial instruments recognized in the balance sheet include cash Financial liabilities measured at fair value in the income and cash equivalents, securities, other financial receivables, trade statement receivables, trade payables, loans, derivatives and equity instruments. This category includes derivatives with negative fair values that are not used for hedge accounting and financial liabilities held for trading. Lia- Current investments and derivatives are recognized on the trade date. bilities in this category are continuously measured at fair value and Equity instruments and loans are recognized on the settlement date. changes in value are recognized in the income statement. Trade receivables and trade payables are recognized in the balance sheet once the invoice has been sent or received, respectively. Financial assets measured at fair value through other comprehensive income Financial assets are initially recognized at cost including transaction This category includes assets that are available for sale or that have costs relating to the acquisition. Financial assets measured at fair not been classified in any of the other categories. These assets are value do not include transaction costs. Financial assets are recog- measured at fair value through other comprehensive income less any nized in the balance sheet until the rights in the agreement have been impairment. realized or the company no longer has the rights to the asset. Reviews are continually conducted using the expected loss model of financial Financial assets measured at amortized cost assets measured at amortized cost to assess the need of credit loss This category comprises loan receivables that have determinable pay- provisions. ments and are not quoted in an active market, as well as trade receiv- ables. Receivables arise when cash and cash equivalents, goods or Financial liabilities are recognized at amortized cost, except for deriv- services are made available directly to another party without any atives that are measured at fair value using hedge accounting, refer to intention of conducting trading in the receivables. Assets in this cate- Note E4. Financial liabilities are derecognized from the balance sheet gory are measured at amortized cost less a potential provision for when SCA has met its commitments. impairment.
For disclosures in note relating to interest-bearing loans and invest- Financial liabilities measured at amortized cost ments, current market interest rates are taken into account in fair value This category includes financial liabilities that are not held for trading. calculations. These are recognized initially at fair value, net after transaction costs, and subsequently at amortized cost according to the effective interest SCA recognizes financial instruments with a remaining maturity of less method. The effective interest method means that the estimated than 12 months as current assets and liabilities. Financial instruments change in value (effective interest) is recognized as interest income or that exceed 12 months, and where the company has the unconditional interest expense in the income statement. right to postpone settlement of the asset and liability for at least 12 months, are recognized as non-current assets and liabilities. Derivatives used for hedge accounting All derivatives are initially and continuously recognized at fair value in Classification and subsequent recognition the balance sheet. Gains and losses on remeasurement of derivatives On the acquisition date, SCA classifies financial instruments into the used for hedging purposes are recognized in accordance with the following categories: accounting principles stated in Note E6.
Financial assets measured at fair value in the income statement
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Assets are classified in this category when the intention is to sell in the short term and, if such is the case, they are recognized continuously at fair value in the income statement. This category also includes deriva- tives with positive market values provided that they are not recognized using hedge accounting.
Only financial derivatives were classified in this category during the year.
Measurement levels Level 1: Quoted prices on an active market for identical assets or lia- or interest rate swaps. Fair value for currency options is determined bilities, such as shares or bonds quoted on the stock exchange. using the Black-Scholes option pricing model.
Level 2: Other observable inputs for the asset or liability than quoted Level 3: Inputs for the asset or liability not fully based on observable prices included in Level 1, either directly (price quotations) or indirectly market data. (obtained from price quotations), such as currency forward contracts
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Financial instruments by category and measurement level Measure- SEKm Note ment level 2020 2019 Financial assets measured at fair value in the income statement Non-current financial assets E2 2 67 53 Derivatives – Current financial assets E2 2 0 3 Derivatives – Other current receivables D6 2 101 23 Total 168 79 Financial liabilities measured at fair value in the income statement Derivatives – Current financial liabilities E4 2 3 1 Derivatives – Other current liabilities D7 2 89 15 Derivatives – Other non-current liabilities D7 2 17 - Total 109 16 Financial assets measured at fair value through other comprehensive income Equity instruments E2 3 14 14 Total 14 14 Financial assets measured at amortized cost Trade receivables E3 - 1,964 2,313 Cash and cash equivalents E2 - 1,273 454 Total 3,237 2,767 Financial liabilities measured at amortized cost
Non-current financial liabilities excluding leases E4 - 7,866 5,190 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Non-current financial liabilities leases D4, E4 - 603 698 Current financial liabilities excluding leases E4 - 1,185 3,574 Current financial liabilities leases D4, E4 - 148 156 Trade payables D9 - 3,319 3,336 Total 13,121 12,954 Derivatives used for hedge accounting Non-current financial assets E2 2 - 0 Other non-current assets - 2 3 2 Other current receivables D6 2 218 78 Total 221 80 Non-current financial liabilities E4 2 19 - Other non-current liabilities D7 2 43 54 Other current liabilities D7 2 96 52 Total 158 106
Financial instruments are measured at fair value, with the exception of loan and trade receivables and financial liabilities measured at amortized cost. The measurement basis for lease liabilities is presented in Note D4. According to SCA’s assessment, the fair value essentially corresponds to the carrying amount, with the exception of non-current liabilities, of which the fair value is presented in Note E4.
Financial instruments in other notes to the balance sheet 2020 2019 Financial Of which Financial Of which SEKm Note instruments derivatives instruments derivatives Assets Financial assets, cash and cash equivalents E2 1,354 - 524 3 Other non-current assets 3 3 2 2 Trade receivables E3 1,964 - 2,313 - Other current receivables D6 319 319 100 100 Total 3,640 322 2,939 105 Liabilities Financial liabilities excl. leases E4 9,073 20 8,764 - Other non-current liabilities D7 60 60 54 54 Lease liabilities D4, E4 751 - 854 - Trade payables D9 3,319 - 3,336 - Other current liabilities D7 185 185 67 67 Total 13,388 265 13,075 121
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E2. FINANCIAL ASSETS, CASH AND CASH EQUIVALENTS E3. TRADE RECEIVABLES
AP ACCOUNTING PRINCIPLES AP ACCOUNTING PRINCIPLES Cash and cash equivalents are defined as cash and bank balances as Trade receivables belong to the category of financial assets measured well as short-term investments with a maturity of less than three months at amortized cost, since the purpose of the holding is to obtain con- from the acquisition date. Loan receivables are recognized at amor- tractual cash flows. Impairment of financial assets must be based on tized cost. Equity instruments comprise shares measured at fair value. expected credit losses for the remaining term of the financial asset. In These shares are not held for trading, which is why changes in value in compliance with IFRS 9 Financial Instruments, SCA applies a simpli- accordance with IFRS 9 Financial Instruments are recognized in equity fied impairment model for trade receivables, whereby the expected through other comprehensive income. The changes in value related to credit loss is recognized for the estimated remaining lifetime of the exchange gains/losses are recognized in the income statement. receivable. In the past, SCA has not incurred significant customer losses and these losses have not exhibited significantly different loss patterns for various customers segments or economic cycles, which is why a matrix is used to measure expected customer losses. The provi- Financial assets, cash and cash equivalents sion for doubtful trade receivables is based on an individual assess- ment of overdue trade receivables for each customer. The basis for the Carrying amount assessment of credit risk in the part of the customer portfolio that is SEKm 2020 2019 not assessed individually is past customer losses, based on average Non-current financial assets loss frequency. The average loss frequency is adjusted as necessary to take into account changes in credit risk. The total provision for TE2:1 Equity instruments 14 14 expected customer losses, in addition to the accounts receivable Derivatives - 0 assessed individually, amounted to SEK –3m (–3) at the end of 2020. Capital investments, other 67 53 SCA has signed credit insurance in order to reduce its credit risk. The BS Total 81 67 trade receivables covered by the credit insurance comprise 31% (23) of total trade receivables on December 31, 2020. Any impairment of Current financial assets trade receivables affects SCA’s other operating expenses. Translation Derivatives 0 3 differences on trade receivables are recognized on the line other oper- BS Total 0 3 ating income and amount to SEK –22m (–5). Translation differences Cash and cash equivalents include hedges in currency derivatives. Cash and bank balances 1,273 454 SCA’s trade receivables are generally current and are not discounted. BS Total 1,273 454
Total financial assets, cash and cash equivalents 1,354 524 Trade receivables Of the Group’s cash and cash equivalents, SEK 0m (0) is not fully available for use by the Group. SEKm 2020 2019 Trade receivables, gross 2,022 2,392 TE2:1 Equity instruments Provision to reserves for doubtful trade receiv- SEKm 2020 2019 ables –58 –79 Value January 1 14 19 BS TE3:1 Total 1,964 2,313 Remeasurement taken to equity, net - –5 TE3:1 Analysis of credit risk exposure in trade Value December 31 14 14 receivables
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Distribution of equity instruments SEKm 2020 2019 Trade receivables neither overdue nor impaired 1,736 1,927 SEKm 2020 2019 Trade receivables overdue but not impaired Shares – Investa Företagskapital AB - - < 30 days 210 334 Shares – Shore Link AB 3 3 30–90 days 6 17 Shares – Sundsvalls Hamn AB 4 4 > 90 days 12 35 Shares – Bioenergi i Luleå AB 3 3 Total trade receivables overdue but Other 4 4 not impaired 228 386 Total 14 14 Total 1,964 2,313 The holding in Investa Företagskapital AB was impaired in its entirety in 2019 as the company was liquidated. The impairment was recog- SCA’s customer structure is dispersed, with customers in many nized in other comprehensive income. different areas of business. In 2020, SCA’s ten largest customers accounted for 31% (32) of the Group’s sales. More information is available in the section on credit risks on page 70.
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Provision to reserves for doubtful trade receivables Borrowing Bond loans and bilateral loans SEKm 2020 2019 SCA has a Medium Term Note (MTN) program with an amount of Value January 1 –79 –48 SEK 8,000m (8,000) for issuing bonds in the capital market. As of Individual provision for possible credit losses –13 –39 December 31, 2020, a nominal SEK 3,700m (2,200) was outstanding Provision for anticipated losses, not overdue trade with an average duration of 3.4 years (1.2). In addition to the bond receivables 0 0 loans, SCA has several long bilateral loans with strong and well- Provision for anticipated losses, overdue trade established banks at a nominal amount of SEK 5,346m (3,977). receivables 0 0 Confirmed credit losses 21 1 Carrying amount, Fair value, Decrease due to reversal of provisions for possible Issued Maturity SEKm SEKm credit losses 13 7 Bond – floating rate 2021 550 555 Value December 31 –58 –79 Bond – fixed rate 2021 650 646 The expense for the period for doubtful trade receivables amounted to Bond – fixed rate 2025 299 300 SEK 19m (28). Bond – floating rate 2025 1,000 1,005 Bond – fixed rate 2027 1,191 1,209 Total 3,690 3,715 E4. FINANCIAL LIABILITIES Carrying AP ACCOUNTING PRINCIPLES amount, Fair value, Bilateral loans SEKm SEKm The main principle for recognition of SCA’s financial liabilities is that Bilateral loans with maturities >1 year <5 years 1,980 1,986 they are initially measured at fair value, net after transaction costs, and Bilateral loans with maturities >5 years 3,366 3,372 subsequently at amortized cost according to the effective interest 2020 REPORT SUSTAINABILITY AND ANNUAL SCA method. Transaction costs are accrued over the term of the loan. Total 5,346 5,358
Liabilities that fall due after one year or later are classified as non- Commercial paper program current liabilities and others are classified as current liabilities. SCA has a Swedish commercial paper program to the amount of SEK 5,000m (5,000), which can be utilized for short-term financing. At year-end, SEK 0m (2,500) was outstanding.
Financial liabilities Program size Issued SEKm Commercial paper SEK 5,000m - SEKm 2020 2019 Total - Non-current financial liabilities Bond issues 2,500 1,200 Derivatives 19 - Other non-current loans with maturities > 1 year < 5 years 2,000 2,419 Lease liabilities with maturities > 1 year < 5 years 205 127 Other non-current loans with maturities > 5 years 3,366 1,571 Lease liabilities with maturities > 5 year 398 571 BS Total 8,488 5,888
Current financial liabilities Bond issues 1,175 1,000 Amortization within one year - - Derivatives 3 1 Loans with maturities of less than 1 year - 2,562 Lease liabilities with maturities of less than 1 year 148 156 Accrued financial expenses 10 11 BS Total 1,336 3,730
Total financial liabilities 9,824 9,618 Fair value of financial liabilities1) 9,069 8,749 1) The fair value of financial liabilities are recognized excluding lease liabilities.
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Credit facilities
Program size Nominal SEKm Maturity Total SEKm Utilized SEKm Unutilized SEKm Sustainability linked Bilateral credit facilities 2,259 2023 2,259 341 1,918 - Syndicated credit facilities 5,000 2024 5,000 - 5,000 Yes Syndicated credit facilities 2,000 2025 2,000 - 2,000 Yes Total 9,259 9,259 341 8,918
SCA has syndicated bank facilities to limit the refinancing risk and The syndicated facilities were unutilized on December 31, 2020. maintain a liquidity reserve. During 2020, the earlier credit facilities During 2020, a first step was taken to integrate financing into the were supplemented with one further facility to the amount of SEK Group’s sustainability agenda. SCA’s existing credit facilities with the 2,000m. Additionally, SCA has a bilateral export credit facility based bank group are now linked to two of the Group’s key sustainability tar- on the purchasing agreement for the paper machine in Obbola, of gets related to climate benefit and forest retention, read more about which SEK 1,918m is unutilized. these targets on pages 50–53.
Maturity profile of gross debt
2021 2022 2023 2024 2025 2026+ 0 –500 –1,000 –1,500 –2,000 –2,500 –3,000 –3,500 Bond issues Other loans
After additions for net pension provisions and deductions for cash and cash equivalents, interest-bearing receivables and capital investment shares, net debt amounted to SEK 7,671m (8,597) at December 31, 2020, refer to Note A2. For a description of the methods used by SCA to manage its refinancing risk, refer to page 70.
Changes in liabilities from financial activities
Reclassification from current to non-current SEKm OB 2020 Cash flow liabilities Revaluation Other CB 2020 SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Current financial liabilities (excluding lease liabilities) 3,574 –3,588 1,199 - - 1,185 Non-current financial liabilities (excluding lease liabilities) 5,190 3,875 –1,199 - - 7,866 Lease liabilities 854 –197 - 29 65 751 Derivatives 0 - - 22 - 22 Total liabilities from financing activities 9,618 90 0 51 65 9,824
Reclassification Opening from current to liability Cash non-current SEKm OB 2019 IFRS 16 flow liabilities Revaluation Other CB 2019 Current financial liabilities (excluding lease liabilities) 2,562 - –50 1,062 - - 3,574 Non-current financial liabilities (excluding lease liabilities) 5,263 - 989 –1,062 - - 5,190 Lease liabilities 0 1,211 –156 0 47 –248 854 Derivatives 0 - - - 0 - 0 Total liabilities from financing activities 7,825 1,211 783 0 47 –248 9,618
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E5. LIQUIDITY RISK When option contracts are used to hedge currency flows, the Group designates only the intrinsic value of the options as the hedging instru- ment. Gains or losses relating to the effective portion of the options The table below shows the Group’s liquidity risk regarding financial lia- are recognized within other comprehensive income in the hedge bilities (including interest payments), and negative cash flows from reserve within equity. The changes in the time value of the options that gross settled derivatives. For a description of how SCA manages its relate to the hedged item are recognized within other comprehensive liquidity risk, refer to page 70. income in the costs of hedging reserve within equity.
Liquidity risk Financial hedges Between 1 More When SCA conducts financial hedges and the transactions do not Less than and 5 than 5 SEKm 1 year years years meet requirements for hedge accounting according to IFRS 9, changes in fair value of the hedging instrument are recognized 2020 directly in the income statement. Loans including interest 1,269 3,603 4,575 Lease liability including interest 185 246 573 Net settled derivatives 0 –7 –11 Energy derivatives 101 19 - Outstanding derivatives Trade payables 1,830 1,489 - SEKm Currency Interest Energy Total Total 3,385 5,350 5,137 2020 Gross settled derivatives1) 5,638 622 - Nominal 5,813 2,450 216 8,479 Assets 314 - 8 322 Between 1 More Liability 126 19 120 265 Less than and 5 than 5 SEKm 1 year years years
2019 2020 REPORT SUSTAINABILITY AND ANNUAL SCA 2019 Nominal 7,625 2,450 606 10,681 Loans including interest 3,631 3,764 1,583 Assets 65 0 40 105 Lease liability including interest 188 240 695 Liability 92 - 29 121 Net settled derivatives 0 0 - Energy derivatives 27 2 - Offsetting of outstanding derivatives Trade payables 1,718 1,618 - Total 5,564 5,624 2,278 SEKm Assets Liabilities 1) Gross settled derivatives1) 6,388 1,381 - December 31, 2020 1) The gross settled derivatives have, largely, corresponding positive cash flows Gross amount 324 267 and therefore in SCA’s opinion do not constitute any real liquidity risk. Offsettable amount –2 –2 Net amount recognized in the balance sheet 322 265 ISDA agreements whose transactions are not E6. DERIVATIVES AND HEDGE ACCOUNTING offset in the balance sheet2) –207 –207 Net after offsetting in accordance with ISDA AP ACCOUNTING PRINCIPLES agreements 115 58 Accounting for derivatives used for hedging purposes 1) All derivatives are initially and continuously recognized at fair value in December 31, 2019 the balance sheet. Gains and losses on remeasurement of derivatives Gross amount 128 144 used for hedging purposes are recognized as described below. When Offsettable amount –23 –23 using hedge accounting, the relationship between the hedge instru- Net amount recognized in the balance sheet 105 121 ment and the hedged item is documented. Assessment of the effec- ISDA agreements whose transactions are not tiveness of the hedge is also documented, both when the transaction offset in the balance sheet2) –69 –69 is initially executed and on an ongoing basis. Hedge effectiveness is the extent to which the hedging instrument offsets changes in value in Net after offsetting in accordance with ISDA agreements 36 52 a hedged item’s fair value or cash flow. The ineffective portion is rec- ognized directly in the income statement. 1) Outstanding derivatives gross without consideration of the right of set-off in accordance with ISDA agreements. Cash flow hedges 2) ISDA entails framework agreements for financial transactions. Gains and losses on remeasurement of derivatives intended for cash Balance sheet flow hedging are recognized in equity under other comprehensive SCA uses financial derivatives to manage risks in currency, interest income and reversed to the income statement at the rate at which the rate and energy price. For a description of how SCA manages these hedged cash flow affects the income statement. If a hedge relation- risks, refer to the Board of Directors’ Report. The table above shows ship is interrupted and cash flow is still expected, the result is recog- the derivatives that impacted the Group’s balance sheet on December nized in equity under other comprehensive income until the cash flow 31, 2020. For more information relating to derivatives in the balance affects the result. If the hedge pertains to a balance sheet item, the sheet, refer to Note E1. result is transferred from equity to the asset or liability to which the hedge relates when the value of the asset or liability is determined for Income statement the first time. For hedges of non-financial assets and liabilities, the Hedges pertaining to transaction exposure had an impact of SEK result of the hedge is recognized at historical cost without a reclassifi- 170m (–374) on operating profit for the period. The net market value cation adjustment and therefore does not affect other comprehensive amounted to SEK 217m (41) on the balance sheet date. Currency income. In cases in which the forecast cash flow that forms the basis hedges increased the cost of non-current assets by SEK 19m (8). of the hedging transaction is no longer assessed as probable, the The net market value amounted to SEK –125m (–68) on the balance cumulative gain or loss that is recognized in equity under other com- sheet date. The net market value for interest rate risk hedges prehensive income is transferred directly to the income statement. amounted to SEK –18m (0). Interest rate derivatives impacted Cash flow hedges relating to energy affect the energy costs, that is, net interest items in an amount of SEK –5m (–5). cost of goods sold. Transaction exposure’s cash flow hedges affect consolidated net sales and expenses. Cash flow hedges relating to interest expenses affect net financial items.
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Energy derivatives had an impact of SEK –351m (131) on operating profit for If the Swedish krona is unilaterally weakened/strengthened by 5%, the period. During the second half of 2020, all electricity derivatives used to forward cover relating to the cost of non-current assets would hedge electricity purchases for publication paper operations at Ortviken increase/decrease equity by SEK 18m (15). For hedge options relating were terminated. The total impact on earnings was SEK –86m. Energy to the cost of non-current assets, a 5% increase in the strength of the derivatives had an outstanding market value of SEK –14m (12) at year-end. krona would entail a decrease in equity of SEK 50m and, conversely, a For further information relating to net financial items, refer to Note E7. 5% weaker krona would increase equity by SEK 51m.
Sensitivity analysis If energy prices increase/decrease by 20%, outstanding financial SCA has performed sensitivity analysis calculations on the financial hedges relating to natural gas and electricity, all other things being instruments’ risk at December 31, 2020 using assumptions on market equal, would decrease/increase energy costs for the period by SEK movements that are regarded as reasonably possible in one year’s 12m (78). In addition to the earnings impact, equity would increase/ time. If the Swedish krona is unilaterally weakened/strengthened by decrease by SEK 5m (36). However, the total energy cost for the Group 5% against all currencies, outstanding financial hedges, trade pay- would have been affected differently if the price risk related to supply ables and trade receivables would decrease/increase profit before tax contracts was taken into account. by SEK 176m (231). Financial hedges with maturities of more than one year would increase/decrease equity by SEK 3m (7).
Outstanding derivatives with hedge accounting1) Hedge reserve SEKm Assets Liability Net Tax after tax 2020 Derivatives with hedge accounting in hedge reserve Cash flow hedges: Energy risk 2 –16 –14 3 –11 Currency risk 213 –122 91 –19 72 Interest rate risk - –19 –19 4 –15 Total 215 –157 58 –12 46
2019 Derivatives with hedge accounting in hedge reserve Cash flow hedges: Energy risk 29 –27 2 - 2 Currency risk 50 –78 –28 5 –23 Interest rate risk 0 - - - - Total 79 –105 –26 5 –21 1) Outstanding derivatives with hedge accounting are included in the table Outstanding derivatives on page 117.
The results from fair value hedges are recognized directly in the E7. FINANCIAL INCOME AND EXPENSES income statement. Financial income and expenses1) Hedge reserve in equity Currency derivatives relating to hedging of transaction exposure SEKm 2020 2019
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 mature mainly in 2021 and during the first quarter of 2022. With Results from shares and participations in other unchanged exchange rates, profit after tax will be affected in an companies amount of SEK 173m (33). Currency derivatives relating to hedging of Dividend - 8 the cost of non-current assets have a maturity spread until September Interest income and similar profit items 2024. With unchanged exchange rates, the cost of non-current assets Interest income, investments 13 12 will decrease by SEK 100m (72) after tax. Other financial income 23 34 The derivatives intended to hedge energy costs in the Group mature IS Total financial income 36 54 during 2021 and 2022. With unchanged prices, the Group’s profit after tax will be affected negatively in an amount of SEK 12m in 2021 and Interest expenses and similar loss items SEK 2m in 2022. Interest expenses, borrowing2) –75 –66 Interest expenses, derivatives –24 –34 Interest expenses, leases –30 –46 Other financial expenses –24 –34 IS Total financial expenses –153 –180
Total –117 –126 1) Other financial income and expenses include an exchange difference of SEK –1m (0). 2) Interest expenses, borrowing includes capitalized interest of SEK 21m (1).
Sensitivity analysis If interest rate levels had been 1 percentage point higher, with unchanged fixed-interest terms and net debt, interest expenses for the period would have been SEK 44m (49) higher. A sensitivity analysis has been performed on the risk to which SCA was exposed at December 31, 2020 using assumptions on market movements that are regarded as reasonable in one year’s time. For a description of how SCA manages its interest rate risk, refer to page 70.
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E8. EQUITY
AP ACCOUNTING PRINCIPLES Transaction costs directly relating to the issue of new shares or portion of consolidated equity that pertains to owners of the Parent. options are recognized, net after tax, in equity as a reduction in the When own shares are sold, the sales proceeds are included in issue proceeds. Expenditure for the purchase of SCA’s own shares retained earnings in the equity pertaining to owners of the Parent. reduces retained earnings in equity in the Parent Company and the
Equity totaled SEK 72,163m (68,510) at December 31, 2020. The following tables show the distribution and profit for the period.
Equity attributable to owners of the Parent Other Non- Share capital Retained controlling Total SEKm capital provided Reserves1) earnings Total interests equity Value January 1, 2020 2,350 6,830 14,693 44,637 68,510 0 68,510
IS Profit for the period recognized in the income statement - - - 767 767 - 767 Other comprehensive income for the period Items that cannot be transferred to profit for the period SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Change in value in land assets - - 3,314 - 3,314 - 3,314 Result from equity instruments measured at fair value ------Remeasurement of defined benefit pension plans2) - - - 327 327 - 327 Income tax attributable to components in other comprehensive income - - –679 –67 –746 - –746 Total - - 2,635 260 2,895 - 2,895 Items that have been or can be transferred to profit for the period Cash flow hedges: Result from remeasurement of derivatives recognized in equity - - –135 - 566 - 566 Transferred to the income statement for the period3) - - 186 - –515 - –515 Hedging cost - - 14 - 14 - 14 Translation differences in foreign operations - - –75 - –75 - –75 Tax on items recognized directly in/transferred from equity4) - - –13 - –13 - –13 Other comprehensive income for the period, net after tax - - 2,612 260 2,872 - 2,872
OCI Comprehensive income for the period - - 2,612 1,027 3,639 - 3,639 Cash flow hedge, transferred to cost of hedged investments - - 19 - 19 - 19 Tax on cash flow hedge, transferred to cost - - –4 - –4 - –4 Acquisition of non-controlling interests - - - - - 0 0 Remeasurement effect upon acquisition of non-controlling interests - - - –1 –1 - –1 Dividend, SEK per share5) ------BS Value December 31, 2020 2,350 6,830 17,320 45,663 72,163 - 72,163 1) Revaluation reserve, hedge reserve, hedging cost, equity instrument and translation reserve are included in the reserves line in the balance sheet, see specification on page 121. 2) Including special payroll tax. 3) In connection with the decision to discontinue operations at Ortviken, SEK 86m pertaining to electricity derivatives was transferred to the income statement. 4) For a specification of income tax attributable to components in other comprehensive income, see page 121. 5) SCA did not pay any dividend in 2020. The dividend in 2019 amounted to SEK 1.75 per share and pertains to the owners of the Parent. For the 2020 fiscal year, the Board has decided to propose a dividend of SEK 2.00 per share to the Annual General Meeting.
For further information regarding equity, see Parent Company Note PC13.
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Equity attributable to owners of the Parent Other Non- Share capital Retained controlling Total SEKm capital provided Reserves1) earnings Total interests equity Value January 1, 2019 2,350 6,830 –113 29,995 39,062 - 39,062
IS Profit for the period recognized in the income statement - - - 15,522 15,522 - 15,522 Other comprehensive income for the period Items that cannot be transferred to profit for the period Change in value in land assets - - 18,893 - 18,893 - 18,893 Result from equity instruments measured at fair value - - - –2 –2 - –2 Remeasurement of defined benefit pension plans2) - - - 444 444 - 444 Income tax attributable to components in other com- prehensive income - - –3,892 –92 –3,984 - –3,984 Total - - 15,001 350 15,351 - 15,351 Items that have been or can be transferred to profit for the period Cash flow hedges: Result from remeasurement of derivatives recognized in equity - - –489 - –489 - –489 Transferred to the income statement for the period - - 209 - 209 - 209 Hedging cost - - 23 - 23 - 23 Translation differences in foreign operations - - 15 - 15 - 15 Tax on items recognized directly in/transferred from equity3) - - 53 - 53 - 53 Other comprehensive income for the period, net after tax - - 14,812 350 15,162 - 15,162
OCI Comprehensive income for the period - - 14,812 15,872 30,684 - 30,684 Cash flow hedge, transferred to cost of hedged investments - - –8 - –8 - –8 Tax on cash flow hedge, transferred to cost - - 2 - 2 - 2 Acquisition of non-controlling interests - - - - - 0 0 Remeasurement effect upon acquisition of non-controlling interests - - - –1 –1 - –1 Dividend, SEK 1.75 per share4) - - - –1,229 –1,229 - –1,229 BS Value December 31, 2019 2,350 6,830 14,693 44,637 68,510 0 68,510 1) Revaluation reserve, hedge reserve, hedging cost, equity instrument and translation reserve are included in the reserves line in the balance sheet, see specification on page 121. 2) Including special payroll tax. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 3) For a specification of income tax attributable to components in other comprehensive income, see page 121. 4) Dividend SEK 1.75 (1.50) per share pertains to owners of the Parent. The Board of Directors had proposed to the Annual General Meeting a dividend of SEK 2.00 per share for the 2019 fiscal year. The Annual General Meeting voted, however, not to pay any dividend due to the uncertainty surrounding Covid-19.
For further information regarding equity, see Parent Company Note PC13.
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Equity, specification of reserves Revaluation reserve1) Hedge reserve2) Translation reserve SEKm 2020 2019 2020 2019 2020 2019 Value January 1 15,001 - –21 189 –287 –302 Revaluation of land assets 3,314 18,893 - - - - Cash flow hedges: Result from remeasurement of derivatives recognized in equity - - –135 –489 - - Transferred to the income statement for the period - - 186 209 - - Hedging cost - - 14 23 - - Translation differences in foreign operations3) - - - - –75 15 Tax on items recognized directly in/transferred from equity –679 –3,892 –13 53 - - Other comprehensive income for the period, net after tax 2,635 15,001 52 –204 –75 15 Cash flow hedge, transferred to cost of hedged investments - - 19 –8 - - Tax on cash flow hedge, transferred to cost - - –4 2 - - Value December 31 17,636 15,001 46 –21 –362 –287 1) The change in revaluation reserve in the year concerns the revaluation of land assets. The revaluation reserve in 2019 concerns the effect of the change of accounting principle to the revaluation model for land assets. 2) See also Note E6 for details of when profit or loss is expected to be recognized. 3) Transfer of realized exchange gains to divested companies to the income statement is included in the amount of SEK 0m (0).
Specification of income tax attributable to other comprehensive income for the period SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA 2020 2019 SEKm Before tax Tax effect After tax Before tax Tax effect After tax Remeasurement of defined benefit pension plans 327 –67 260 444 –92 352 Cash flow hedges 51 –13 38 –280 53 –227 Hedging cost 14 - 14 23 - 23 Translation differences in foreign operations –75 - –75 15 - 15 Revaluation of land assets 3,314 –679 2,635 18,893 –3,892 15,001 Result from equity instruments measured at fair value - - - –2 - –2 Other comprehensive income for the period 3,631 –759 2,872 19,093 –3,931 15,162
At December 31, 2020, the debt/equity ratio amounted to 11% (13). Change in liabilities and equity is described on page 64 under Financial posi- tion. SCA aims to establish an effective capital structure, while at the same time ensuring long-term access to loan financing. Cash flow in relation to net debt shall take into account the target to maintain a credit rating corresponding to investment grade rating. SCA has a credit rating for long- term debt of BBB- from Standard & Poor’s. SCA’s financial risk management is described in the Risk and risk management section on page 70.
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F. GROUP STRUCTURE
F1. SUBSIDIARIES
AP ACCOUNTING PRINCIPLES Subsidiaries dividends by the company. The SCA Group consolidates 100% of The companies over which the SCA Group has a controlling influence Gällö Timber AB. are consolidated as subsidiaries. Controlling influence means that SCA has sufficient influence to control the activities of the subsidiary, Non-controlling interests has the right to its returns and has control over its exposure, and is Non-controlling interests are recognized as a separate item in the able to impact the return of the company through its influence. Most of Group’s equity. Profit or loss and every component of other compre- the Group’s subsidiaries are wholly owned. hensive income are attributable to the owners of the Parent and to non-controlling interests. Losses attributable to non-controlling inter- Gällö Timber AB is 50% owned by SCA and 50% owned by AB ests are recognized even if this results in a negative balance for the Persson Invest. The wholly owned subsidiary Gällö Skog AB merged interest. In connection with acquisitions of less than 100%, non-con- with Gällö Timber AB in 2020. SCA is considered to have a controlling trolling interests are determined either as a proportional share of the influence over Gällö Timber AB, despite the fact that SCA does not fair value of identifiable net assets excluding goodwill or at fair value. have a majority of the votes in the company. SCA is deemed to have a Subsequent acquisitions up to 100% and divestments of participa- controlling influence since it has control over activities with an impact tions in a subsidiary that do not lead to a loss of controlling influence on the Gällö Timber AB’s return. Gällö Timber AB sells solid-wood are recognized as an equity transaction. products and sales totaled SEK 864m (628). SEK 10m (15) was paid in
List of major subsidiaries The Group’s participations in major subsidiaries at December 31, 2020. The table below shows wholly owned subsidiaries and subsidiaries with significant interests and controlling influence, with external sales in excess of SEK 100m in 2020.
Share of equity at Share of equity at Company name Corp. Reg. No. Domicile December 31, 2020 December 31, 2019 SCA Graphic Sundsvall AB 556093-6733 Sundsvall, Sweden 100 100 SCA Munksund AB 556237-4859 Piteå, Sweden 100 100 SCA Obbola AB 556147-1003 Umeå, Sweden 100 100 SCA Wood AB 556047-8512 Sundsvall, Sweden 100 100 SCA Wood Hong Kong Ltd 1134245 Hong Kong, China 100 100 SCA Wood UK Ltd 2541468 Stoke-on-Trent, UK - 100 SCA Wood Scandinavia AB 556302-0667 Sundsvall, Sweden 100 100 Gällö Timber AB 556801-1786 Bräcke, Sweden 50 50 SCA ANNUAL AND SUSTAINABILITY REPORT 2020
F2. ASSOCIATED COMPANIES
AP ACCOUNTING PRINCIPLES Associated companies Associated companies are companies in which the Group exercises a The Group’s share of profit after tax arising in the associated compa- significant influence without the partly owned company being a sub- nies after the acquisition is recognized on the line result from partici- sidiary. Normally, this means that the Group owns between 20 and pations in associated companies in the consolidated income state- 50% of the votes. Accounting for associated companies is carried out ment. Share in profits is calculated on the basis of SCA’s share of according to the equity method and they are initially measured at cost. equity in the respective associated company. Valuation of acquired assets and liabilities is performed in the same manner as for subsidiaries and the carrying amount for associated companies includes any goodwill and other Group adjustments.
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Holdings in associated companies
SEKm 2020 2019 SCA Wood France S.A.S. and the French company Groupe ISB Value January 1 367 29 merged their operations in wood processing and the distribution of Investments - 352 wood products in France during the first quarter of 2019. SCA’s share- holding in the combined company Florencia S.A.S. amounts to 38.5%. Net change in associated companies1) 20 –14 Translation differences –9 - BS Value December 31 378 367 1) Net change for the period includes the Group’s share of the profit after tax of associated companies.
Participation, % Carrying amount, SEKm Company name Corp. Reg. No. Domicile 2020 2019 2020 2019 Florencia S.A.S. 809 910 177 Rennes, France 38.5 38.5 358 347 Other 20 20 Total 378 367
F3. CORPORATE ACQUISITIONS AND DIVESTMENTS
AP ACCOUNTING PRINCIPLES SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Acquisition of subsidiaries Transaction costs in conjunction with business combinations are not SCA applies IFRS 3 Business Combinations in connection with acqui- included in cost, but rather expensed directly. sitions. A corporate acquisition can be classified as a business combi- nation or an asset acquisition. If the acquired assets are not part of a Companies acquired during the period are included in the consoli- business, the transaction is recognized as an asset acquisition. A cor- dated financial statements as of the acquisition date. Divested compa- porate acquisition with the primary purpose of acquiring the compa- nies are included in the consolidated financial statements until the ny’s properties and where any of the company’s management organi- divestment date. zation and administration are of secondary importance for the acquisition, is classified as an asset acquisition. For an asset acquisi- Non-controlling interests tion, no deferred tax is recognized attributable to the acquisition. Acquisitions of non-controlling interests are measured on an acquisi- tion-by-acquisition basis, either as a proportional share of the fair In business combinations, acquired assets and assumed liabilities are value of identifiable net assets excluding goodwill (partial goodwill) or identified and classified at fair value on the date of acquisition (also at fair value, which means that goodwill is also recognized on known as an acquisition analysis). The date of acquisition is set at non-controlling interests (full goodwill). when controlling influence is obtained over the acquired company. The acquisition analysis also includes the identification of whether In step acquisitions in which a controlling influence is achieved, any there are any assets that are intangible in nature, such as trademarks, net assets acquired earlier in the acquired units are remeasured at fair patents, customer contracts or similar assets that were not recog- value and the result of the remeasurement is recognized in the income nized in the acquired unit. If the cost is higher than the net value of the statement. If the controlling influence is lost upon the divestment of an acquired assets, assumed liabilities and identified intangible assets, operation, the result is recognized in the income statement. The por- the difference is recognized as goodwill. Any surplus value on tangible tion of the divested operation that remains in the Group is measured at fixed assets is depreciated over the estimated useful life of the asset. fair value on the divestment date, with the remeasurement effect rec- Goodwill and strong trademarks with indefinite useful lives are not ognized in the income statement. amortized; instead, they are subjected to annual impairment testing. Some trademarks and customer contracts are amortized over their Acquisitions in which a controlling influence is achieved are recog- estimated useful lives. nized as an equity transaction, meaning a transfer between equity attributable to owners of the Parent and non-controlling interests. If the transferred consideration is contingent on future events, it is The same applies for divestments that take place without the loss of measured at fair value. Any change in value is recognized in profit for a controlling influence. the period.
Acquisitions Divestments In 2020, approximately 13,200 hectares of forest land was acquired in The subsidiary SCA Wood UK Ltd was divested in 2020. The divest- Latvia through five transactions for a purchase consideration of about ment resulted in a capital loss of approximately SEK 90m. The subsid- SEK 450m on a debt-free basis. The acquisitions were recognized as iary SCA Logistics B.V. (Rotterdam) was divested in 2019. asset acquisitions. The corresponding figure for 2019 is SEK 950m, when approximately 30,000 hectares of forest land was acquired in Estonia and Latvia.
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G. OTHER
G1. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
AP ACCOUNTING PRINCIPLES Non-current assets held for sale Discontinued operations Assets are classified as held for sale if their value, within one year, will When an independent business segment or a significant operation be recovered through a sale and not through continued use in the within a geographic area is divested, it is classified as a discontinued operations. On the reclassification date, the assets and liabilities are operation. The divestment date, or the point in time when the opera- measured at the lower of fair value minus selling costs and the car- tion fulfills the criteria for classification as held for sale, determines rying amount. The assets are no longer depreciated after reclassifica- when the operation should be classified as a discontinued operation. tion. The gain is limited to the amount equivalent to previously made impairment charges. Gains and losses recognized on remeasurement and divestment are recognized in the income statement for the period. In 2020, there are no non-current assets held for sale.
Discontinued operations In 2019, SCA divested Logistics B.V. The transaction had an impact on operating profit of SEK 78m. The cash flow effect was SEK 370m. The transaction reduced SCA’s net debt by SEK 660m (including a decrease in lease liability).
The divested operation was recognized in accordance with IFRS 5 Non-current assets held for sale and discontinued operations. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
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G2. CONTINGENT LIABILITIES, PLEDGED ASSETS AND COMMITMENTS
AP ACCOUNTING PRINCIPLES A contingent liability is recognized when there is a potential or actual outflow of resources will be required to settle the obligation or obligation arising from events that have occurred that is not recog- because the amount cannot be calculated in a reliable manner. nized as a liability or provision, either because it is improbable that an
Contingent liabilities Pledged assets
SEKm 2020 2019 SEKm 2020 2019 Guarantees for: Chattel mortgages - 20 associated companies 5 5 Total - 20 customers and others 28 31 Liabilities for which some of these assets were pledged as collateral Other contingent liabilities 19 18 amounted to SEK 0m (0). The holding of chattel mortgages was termi- Total 52 54 nated in 2020.
In 2007, SCA entered into a sale and leaseback transaction with a Commitments European bank relating to the soda recovery boiler at the kraftliner SCA has a decided investment in Obbola totaling SEK 7.5bn over a plant in Obbola, Sweden. The term of the contract is 25 years and SCA five-year period. As of December 31, 2020, SEK 5.2bn remained, of has a right to terminate the transaction in 2023 without any financial which SEK 3.0bn was a contracted commitment. The commitment in consequences. SCA has retained all risks and rewards associated its entirety refers to fixed assets. with ownership. SCA has therefore continued to recognize the soda 2020 REPORT SUSTAINABILITY AND ANNUAL SCA recovery boiler as a non-current asset in the balance sheet. The present value of SCA’s future rental amounts was SEK 671m. A corre- sponding amount was invested in a security with an A rating issued by the counterparty and deposited in a Swedish bank assigned to handle rental payments during the term of the contract. Should the counter- party’s rating fall below BBB–, SCA is entitled, without incurring any financial consequences, to terminate the transaction in advance. Should SCA, as a result of extraordinary events (of a force majeure nature), choose not to fulfill, or cannot fulfill leasing contracts, SCA is liable to compensate the counterparty for any economic loss that may be incurred as a result. Compensation varies during the duration of the contract and can amount to a maximum of 11% of the transaction amount. SCA has the facility at its disposal without operational restric- tions. The lease and depositary arrangement have been recognized net in SCA’s balance sheet since 2007.
G3. TRANSACTIONS WITH RELATED PARTIES G4. EVENTS AFTER THE END OF REPORTING PERIOD
To the extent that transactions with related parties took place, these In January 2021 SCA signed a contract with an agent for the potential were based on generally accepted commercial terms and conditions sale of the three paper machines in Ortviken, during 2021 and 2022, and pricing in the industry, and were entered into on standard com- following the cessation of production on these machines during the mercial conditions. first quarter of 2021. The contract contains no financial guarantees and the fulfillment of the contract is highly uncertain. The contract is For information regarding salaries and other remuneration, costs and therefore assessed to have no material effect, positive or negative, obligations for pensions and similar benefits for the Board, President on the recorded values as at 31st December 2020 connected to the and CEO and other senior executives, refer to Notes C3–C5. discontinuation of the publication paper business.
Otherwise, no transactions took place between SCA and related parties.
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Parent Company income statement PIS
SEKm Note 2020 2019 Operating income Other operating income 273 235 Total income 273 235
Operating expenses Other operating expenses PC1 –235 –160 Personnel costs PC2 –102 –91 Depreciation –89 –86 Total operating expenses –426 –337
Operating profit –153 –102
Financial items PC11 Result from participations in Group companies - - Interest income and similar profit items 164 192 Interest expenses and similar loss items –131 –94 Total financial items 33 98
Profit after financial items –120 –4
Appropriations PC5 683 1,793 Profit before tax 563 1,789
Taxes PC6 –133 –390 Profit for the period 430 1,399
Parent Company statement of comprehensive income POCI
SEKm 2020 2019 Profit for the period 430 1,399 SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Other comprehensive income - - Total comprehensive income 430 1,399
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Parent Company statement of change in equity PEQ
Retained earnings Revaluation and profit for the SEKm Share capital1) reserve Statutory reserve period2) Total equity Value January 1, 2020 2,350 1,740 7,283 8,551 19,924 Dividend - - - - - Profit for the period - - - 430 430 Value December 31, 2020 2,350 1,740 7,283 8,981 20,354
Value January 1, 2019 2,350 1,740 7,283 8,381 19,754 Dividend, SEK 1.75 per share - - - –1,229 –1,229 Profit for the period - - - 1,399 1,399 Value December 31, 2019 2,350 1,740 7,283 8,551 19,924 1) Refer also to Note PC13. 2) No dividend was paid for the 2019 fiscal year due to the uncertainty surrounding Covid-19. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
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Parent Company balance sheet PBS
SEKm Note 2020 2019 ASSETS Non-current assets Land and buildings PC7 8,723 8,641 Tangible fixed assets 8,723 8,641 Participations in Group companies PC8 9,604 9,604 Other long-term receivables 86 77 Financial fixed assets 9,690 9,681
Total fixed assets 18,413 18,322
Current assets Receivables from subsidiaries PC9 12,726 12,100 Current tax assets PC6 5 41 Other current receivables PC10 476 274 Cash and cash equivalents PC11 1,063 148 Total current assets 14,270 12,563
Total assets 32,683 30,885
EQUITY, PROVISIONS AND LIABILITIES Equity Share capital PC13 2,350 2,350 Revaluation reserve 1,740 1,740 Statutory reserve 7,283 7,283 Total restricted equity 11,373 11,373 Retained earnings 8,551 7,152 Profit for the period 430 1,399 Total non-restricted equity 8,981 8,551
Total equity 20,354 19,924
Provisions Provisions for pensions PC4 47 43 Provisions for taxes PC6 1,564 1,551 Total provisions 1,611 1,594
Non-current liabilities SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Non-current interest-bearing liabilities PC11 7,846 5,180 Other non-current liabilities 82 56 Total non-current liabilities 7,928 5,236
Current liabilities Current interest-bearing liabilities PC11 1,200 3,500 Liabilities to subsidiaries PC9 1,298 517 Trade payables 9 0 Current tax liabilities PC6 0 0 Other current liabilities PC12 283 114 Total current liabilities 2,790 4,131
Total equity, provisions and liabilities 32,683 30,885
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Parent Company cash flow statement PCF
SEKm Note 2020 2019 Operating activities Profit after financial items –120 –4 TPC:1 Adjustment for non-cash items 23 –133 –97 –137 Paid tax PC6 –84 –485 Cash flow from operating activities before changes in working capital –181 –622 Change in operating receivables –828 5,099 Change in operating liabilities 985 –1,223 Cash flow from operating activities –24 3,254
Investing activities Acquisition of fixed assets PC7 –184 –268 Acquisition of financial assets PC8 –9 –4,863 Divestment of financial assets - - Divestment of tangible fixed assets 83 285 Cash flow from investing activities –110 –4,846 SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Financing activities Loans raised 3,866 1,000 Amortization of debt –3,500 –50 Dividend - –1,229 Group contributions PC5 683 1,793 Cash flow from financing activities 1,049 1,514
Cash flow for the period 915 –78 Cash and cash equivalents, January 1 148 226 Cash and cash equivalents, December 31 1,063 148
TPC:1 Adjustment for non-cash items
SEKm 2020 2019 Depreciation of fixed assets 89 86 Capital gain on divestment of fixed assets –70 –256 Unrealized exchange rate effects/changes in value of receivables and financial assets –13 18 Change in provisions 17 19 Other items - - Total 23 –133
Supplementary disclosures to cash flow
SEKm 2020 2019 Interest paid and received Interest paid –82 –58 Interest received 164 192 Total 82 134
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PC. PARENT COMPANY NOTES
PC1. OTHER OPERATING EXPENSES PC4. PROVISIONS FOR PENSIONS
Auditing expenses AP ACCOUNTING PRINCIPLES
SEKm 2020 2019 The Parent Company’s provisions for pensions are secured by the EY Pension Obligations Vesting Act (Tryggandelagen) and through capital insurance policies. The main difference between the rules of the Pen- Audit assignments –4 –4 sion Obligations Vesting Act and IAS 19 in respect of pensions is that Auditing activities other than the audit assignment –1 –1 Swedish practice disregards future increases in salaries and pensions Total –5 –5 when calculating the present value of the pension obligation. Both defined contribution and defined benefit plans exist in the Parent Company. PC2. PERSONNEL AND BOARD COSTS
Personnel and Board costs
SEKm 2020 2019 Capital value of pension obligations relating to self- administered pension plans Salaries and remuneration –64 –58 of which Executive Management –56 –50 SEKm 2020 2019 of which Board –8 –8 Provisions in accordance with the Pension Obliga- tions Vesting Act 32 28 Pension costs1) –16 –12 Provisions outside the Pension Obligations Vesting Other social security costs –21 –20 Act’s regulations 15 15 Other personnel costs –1 –1 PBS Total 47 43 Total –102 –91 1) The Parent Company’s pension costs pertain entirely to the President and CEO Of the total pension liability in 2020 of SEK 47m, SEK 15m (15) is a and other senior executives. Pension costs are SEK 3m higher than stated in direct pension liability secured through capital insurance policies. The Note C3 due to an increase in the value of the current pension liability to the direct pension liability is not secured in accordance with the Pension President and CEO and other senior executives. Obligations Vesting Act. The capital insurance policies are reported as other long-term receivables in the balance sheet. For the remainder of the pension liability, external actuaries have carried out capital value PC3. PERSONNEL DATA calculations pursuant to the provisions of the Pension Obligations Vesting Act. The discount rate is 0.89% (0.7). Average number of employees The company’s outstanding pension obligations as per the balance 2020 2019 sheet on December 31, 2020 relate to the President and CEO and Average number of employees 12 12 other senior executives. of whom men 9 10 For further information on the Parent Company’s pension plans, see of whom women 3 2 Note C3. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 PC5. APPROPRIATIONS
AP ACCOUNTING PRINCIPLES For Group contributions, the Parent Company applies the alternative rule of RFR 2 and recognizes Group contributions paid and received, net, as appropriations.
Appropriations
SEKm 2020 2019 Group contributions received from subsidiaries 1,561 2,256 Group contributions paid to subsidiaries –878 –463 PIS Total 683 1,793
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PC6. TAXES
AP ACCOUNTING PRINCIPLES Tax pooling in the Group is carried out via Group contributions paid The Parent Company recognizes the majority of the Group’s Swedish and received. For Group contributions, the Parent Company applies taxes. The TPC6:1 table calculates the expected tax expense based the alternative rule of RFR 2 and recognizes Group contributions paid on profit before tax multiplied by the current tax rate. and received, net, as appropriations.
Tax expense (+), tax income (–) Current tax liability (+), tax asset (–) SEKm 2020 2019 SEKm 2020 2019 Value January 1 –41 56 TPC6:2 Deferred tax 13 2 Current tax expense 120 388 Current tax 120 388 Paid tax –84 –485 PIS Total 133 390 PBS Value, December 31 –5 –41
TPC6:1 Explanation of tax expense TPC6:2 Deferred tax expense (+), tax income (–) 2020 2019 SEKm 2020 2019 Reconciliation SEKm % SEKm % Changes in temporary differences 13 2 Profit before tax 563 1,789 Total 13 2 PIS Tax expense/income 120 21.3 390 21.8 SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Expected tax 121 21.4 383 21.4 Provisions for taxes Difference –1 –0.1 7 0.4 Value Value The difference is due to: January 1, Deferred tax December 31, Taxes related to prior periods - - –1 - SEKm 2020 expense 2020 Other items –1 –0.1 8 0.4 Land and buildings 1,556 19 1,575 Total –1 –0.1 7 0.4 Provisions for pensions –11 - –11 Tax loss carryforwards 0 - 0 Other 6 –6 - PBS Total 1,551 13 1,564
PC7. TANGIBLE FIXED ASSETS
AP ACCOUNTING PRINCIPLES The Parent Company’s tangible fixed assets are recognized in accor- In the consolidated accounts, forest assets are recognized at fair dance with the Group’s accounting principles. The Parent Company value and are divided into standing timber and land assets. Standing recognizes standing timber as a tangible fixed asset at historical cost. timber is recognized as a biological asset according to IAS 41 Agricul- No systematic depreciation or changes in value in conjunction with ture, and land assets attributable to forest assets are recognized as felling is carried out in the Parent Company. Collective revaluation of tangible fixed assets at fair value according to paragraph 31 in IAS 16 forest assets has occurred. The revaluation amount was placed in the Property, plant and equipment. For further information, refer to Note revaluation reserve in equity. D2.
Tangible fixed assets Land and land Machinery and Buildings improvements equipment Total SEKm 2020 2019 2020 2019 2020 2019 2020 2019 Accumulated costs 173 172 4,499 4,330 5 5 4,677 4,507 Accumulated depreciation –123 –119 –1,275 –1,191 –5 –5 –1,403 –1,315 Accumulated write-ups - - 5,449 5,449 - - 5,449 5,449 Residual value according to plan 50 53 8,673 8,588 - - 8,723 8,641
Value January 1 53 44 8,588 8,445 - - 8,641 8,489 Investments 3 15 181 253 - - 184 268 Disposals - - –13 –30 - - –13 –30 Depreciation for the period –6 –6 –83 –80 - - –89 –86 PBS Value, December 31 50 53 8,673 8,588 - - 8,723 8,641
Land and land improvements include the carrying amount of SEK 7,702m (7,631) for forest assets.
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PC8. PARTICIPATIONS IN GROUP COMPANIES
AP ACCOUNTING PRINCIPLES Participations in Group companies
The Parent Company recognizes all holdings in Group companies at SEKm 2020 2019 cost after deduction for any accumulated impairment losses. An Accumulated costs 9,604 9,604 assessment is carried out on an annual basis to determine if any Carrying amount 9,604 9,604 impairment is needed in the item Participations in Group companies. The need for impairment is determined individually and impairment is effected if the value decrease is considered permanent. Impairment is Value January 1 9,604 4,758 recognized in the item result from participations in Group companies. Investments - 4,846 PBS TPC8:1 Value December 31 9,604 9,604 Impairment testing Testing means the carrying amount of shares in subsidiaries is com- In 2019, the Parent Company provided an unconditional shareholders’ pared with consolidated equity. The annual impairment testing of the contribution to the subsidiary SCA Graphic Holding AB amounting to carrying amount of shares in subsidiaries has not resulted in any SEK 4,846m. impairment.
TPC8:1 Parent Company’s holdings of shares in subsidiaries, December 31, 2020
No. of Share of Carrying Company name Corp. Reg. No. Domicile shares equity, % amount, SEKm Swedish subsidiaries SCA Graphic Holding AB 556479-2058 Sundsvall, Sweden 1,000 100 9,604 SCA Skogsfastigheter AB 556207-6256 Sundsvall, Sweden 1,000 100 0 SCA Kraftfastigheter AB 556449-7237 Sundsvall, Sweden 1,000 100 0 Total carrying amount of subsidiaries 9,604
PC9. RECEIVABLES FROM AND LIABILITIES TO PC10. OTHER CURRENT RECEIVABLES SUBSIDIARIES Other current receivables Receivables from and liabilities to subsidiaries SEKm 2020 2019 SEKm 2020 2019 TPC10:1 Prepaid expenses and accrued income 130 17 Current assets Other receivables 346 257 Interest-bearing receivables 10,957 9,780 PBS Total 476 274 Other receivables 1,769 2,320 PBS Total 12,726 12,100 TPC10:1 Prepaid expenses and accrued income
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 SEKm 2020 2019 Current liabilities Prepaid financial expenses 129 16 Interest-bearing liabilities 70 103 Other items 1 1 Other liabilities 1,228 414 Total 130 17 PBS Total 1,298 517
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Parent Company
PC11. FINANCIAL INSTRUMENTS Financial liabilities measured at amortized cost SEKm 2020 2019 AP ACCOUNTING PRINCIPLES Liabilities Financial assets and liabilities are recognized at amortized cost, with Non-current liabilities the exception of derivatives, which are measured at fair value. Interest-bearing liabilities 7,846 5,180 Current liabilities The accounting principles for financial instruments in the Parent Com- Interest-bearing liabilities 1,200 3,500 pany are in accordance with the Group’s accounting principles except that hedge accounting is not applied, see Note E1. Financial instru- Liabilities to subsidiaries 70 103 ments are classified in accordance with IFRS 9 Financial Instruments. Trade payables 8 0 For definitions, see Note E1. Other current liabilities 10 10 Total 9,134 8,793
Financial items Financial assets measured at fair value SEKm 2020 2019 in the income statement Result from participations in Group companies SEKm 2020 2019 Dividends from subsidiaries - - Derivatives – Non-current financial assets - - Derivatives – Current financial assets - 3 Interest income and similar profit items Derivatives – Other long-term receivables 64 56 Interest income, subsidiaries 164 192 Derivatives – Other current receivables 503 166 Total 567 225 Interest expenses and similar loss items SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Interest expenses, external –105 –56 Financial liabilities measured at Interest expenses, subsidiaries –1 –5 fair value in the income statement Other financial expenses1) –25 –33 SEKm 2020 2019 PIS Total 33 98 Derivatives – Other non-current liabilities 82 56 1) The item includes exchange rate differences amounting net to SEK –1m (–1). Derivatives – Other current liabilities 506 166 Total 588 222 Interest-bearing liabilities Non-current interest-bearing liabilities Carrying amount Fair value PC12. OTHER CURRENT LIABILITIES SEKm 2020 2019 2020 2019 Loans with maturities >1 Other current liabilities year <5 years 4,437 1,791 4,448 1,797 SEKm 2020 2019 Loans with maturities >5 years 3,409 3,389 3,424 3,390 TPC12:1 Accrued expenses and prepaid income 47 43 PBS Total 7,846 5,180 7,872 5,187 Other operating liabilities 236 71 PBS Total 283 114 Current interest-bearing liabilities TPC12:1 Accrued expenses and prepaid income Carrying amount Fair value SEKm 2020 2019 2020 2019 SEKm 2020 2019 Loans with maturities <1 Accrued interest expenses 8 4 year 1,200 3,500 1,201 3,507 Accrued social security costs 8 7 PBS Total 1,200 3,500 1,201 3,507 Accrued vacation pay liability 2 1 Other liabilities to personnel 17 14 For further information about borrowing activities during the year, refer to Note E4. Other items 12 17 Total 47 43 Financial instruments by category Financial assets measured at amortized cost SEKm 2020 2019 Assets Financial fixed assets Interest-bearing receivables 22 21 Current assets Receivables from subsidiaries 10,957 9,780 Other current receivables 0 1 PBS Cash and cash equivalents 1,063 148 Total 12,042 9,950
133 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Parent Company
PC13. SHARE CAPITAL
The change in equity is shown in the Parent Company statement of change in equity. The share capital and number of shares have changed since 1993 on account of new issues, new subscription, conversions, splits, and the cancellation of own shares as set out below:
Increase in Cash payment, Year Event No. of shares share capital SEKm 1993 Number of shares, January 1, 1993 172,303,839 1993 Conversion of debentures and new subscription through Series 1 warrants 4,030,286 40.3 119.1 New issue 1:10, issue price SEK 80 17,633,412 176.3 1,410.7 1994 Conversion of debentures 16,285 0.2 - 1995 Conversion of debentures 3,416,113 34.2 - 1999 New issue 1:6, issue price SEK 140 32,899,989 329.0 4,579.0 2000 Conversion of debentures 101,631 1.0 15.0 2001 New issue, private placement 1,800,000 18.0 18.0 2002 New subscription through IIB warrants 513 - 0.1 2003 Conversion of debentures 1,127,792 11.3 288.4 New subscription through IIB warrants 1,697,683 17.0 434.5 2004 Conversion of debentures 9,155 0.1 1.1 2007 Split 3:1 470,073,396 - - 2017 Cancellation of own shares –2,767,605 - - 2020 Number of shares December 31, 2020 702,342,489
SCA’s share capital, December 31, 2020
No. of votes Share capital, per share No. of shares SEKm Class A shares 10 64,587,672 216 Class B shares 1 637,754,817 2,134 Total 702,342,489 2,350
The quotient value of the Parent Company’s shares amounts to SEK 3.35.
PC14. PLEDGED ASSETS AND CONTINGENT LIABILITIES PC15. PROPOSED DISPOSITION OF EARNINGS
Contingent liabilities Annual accounts 2020 Disposition of earnings, Parent Company (SEK)
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 SEKm 2020 2019 Guarantees for subsidiaries 724 750 Non-restricted equity in the Parent Company: Other contingent liabilities 333 285 Retained earnings1) 8,551,217,078 Total 1,057 1,035 Profit for the period 430,279,508 Total 8,981,496,586 Pledged assets
SEKm 2020 2019 The Board of Directors and the President and CEO propose: Chattel mortgages - 20 – to be distributed to shareholders, a dividend of Total - 20 SEK 2.00 per share 1,404,684,978 – to be carried forward 7,576,811,608 The holding of chattel mortgages was terminated in 2020. Total 8,981,496,586 1) No dividend was paid for the 2019 fiscal year due to the uncertainty surrounding Covid-19.
The annual accounts are subject to adoption by SCA’s Annual General Meeting and will be presented for approval at the Annual General Meeting on April 15, 2021.
134 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Sustainability facts SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Contents
136 Value creation 137 Strategic priorities and Group targets 141 Governance and materiality 144 Values 147 Profitable growth 148 Fossil-free world 151 Valuable forests 153 Efficient use of resources 156 Responsibility for people and the community 159 Social data 160 Environmental data 162 About the Sustainability Report
135 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Value creation
SCA’s sustainability work is integrated into the Group’s operations and business decisions. SCA’s 2020 Sustainability Report is an integrated part of the combined Annual Report.
Value creation Through its operations, SCA helps to create value for a SCA has a long-term perspective in its operations and sustain- large number of stakeholders. These values include: ability is an integrated part of the company’s operations and its business model. SCA’s sustainability work encompasses social, • Climate benefit from growing forests that capture and economic and environmental goals, which are integrated into the bind CO2 and products that replace fossil-based alter- company’s work and business development. The Group’s work natives is summarized in SCA’s sustainability platform, which covers the • Enabler of a circular society by providing access to company’s operations as a whole and is an important compo- renewable products and renewable energy nent of the SCA brand. Read more on page 49. • Shareholder value for the company’s shareholders • Value of forest land through a stable wood supply to The set of values forms the foundation of SCA’s corporate cul- SCA’s industries ture and indicates how the company integrates with its stake- holders, does business and conducts its operations. Profitable • Job opportunities in the company’s operations and at growth is the foundation of the company’s strategy and part of contractors sustainable development. Long-term economic returns are an • Business opportunities for suppliers of goods and ser- integrated part of SCA’s sustainability platform together with the vices other components: Fossil-free world, Valuable forests, Efficient • Recreation and outdoor activities in the company’s use of resources and Responsibility for people and the commu- forests nity. Through these six components, SCA makes a direct or indi- rect contribution to all 17 of the UN’s Sustainable Development • Sustainable local communities and regional develop- Goals. ment through the company’s presence and operations SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Economic value creation SCA is an important source of prosperity and welfare. A large portion of payments to suppliers are made to SCA’s local area in The company’s operations generate economic values for Northern Sweden. This is particularly the case for purchasing wood raw material and contractors’ services. shareholders, employees, suppliers, investors and society. For payments to employees, SEK 2,800m (93%) pertain to employees in Sweden, mainly in Northern Sweden. 65.1% Payments to suppliers including other forest owners: SEK 13,869m (14,169) A significant share of this figure was received by municipalities and the state in Sweden, through the payment of social security costs, payment 14.1% Salaries, social security costs by employees of municipal and state income taxes, and through the and pension provisions to SCA’s consumption of products and services. employees: SEK 3,003m (2,997) 6.6% Dividend to shareholders, in 95% of the reported income tax amount pertains to Sweden. accordance with Board’s proposal: The minor share, SEK 152m, consists of current tax expense and the SEK 1,405m (0) remaining SEK 332m of deferred tax income. 0.5% Interest paid to creditors: The area of the circle SEK 117m (126) The amount “Remaining in SCA” comprises profit for the period excluding depreciation/amortization and deductions for the dividend for represents SCA’s rev- 2.3% Income tax to society: enue, including changes SEK 484m (730) 2020 in accordance with the Board’s proposal. in value to biological assets, totaling SEK 11.4% Remaining in SCA: Further information about the cost structure is available in the Board of SEK 2,435m (4,463) 21,313m (2019: 22,485) Directors’ Report and regarding income taxes in Notes B2, B3 and B4.
136 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Strategic priorities and Group targets
SCA’s Group targets 2030 – Sustainability targets
During 2020, SCA has further developed its sustainability plat- The targets are formulated on the basis of the prioritized areas form and supplemented six Group targets, one for each compo- resulting from the materiality analysis and are based on market nent. The Group targets are long term and are supplemented trends, the UN’s 17 Sustainable Development Goals, stakeholder with a number of supporting targets, which describe how the tar- expectations and the company’s strategic priorities. Read more gets will be achieved. The base year is 2019. The use of a limited about SCA’s sustainability platform in the Strategy and opera- number of clear targets and a time horizon of 2030 offers a clear tions section on page 49. direction for employees and external stakeholders.
Values Profitable growth Target: All employees comply with SCA’s Code of Conduct. Target: Leading total shareholder return including dividends. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA How: All employees are trained in the Code of Conduct with How: Leading performance, stable and growing dividend to the ambition of no violations of the Code. Purchasing from shareholders, strong financial positions with investment suppliers who share SCA’s values, where more than 98% of grade credit rating. contract suppliers have approved SCA’s Supplier Standard and where audits are conducted of supplier operations using a risk-based selection.
Fossil-free world Valuable forests Target: Increase SCA’s climate benefit from 10 to 15 million Target: 100% of wood raw material is to come from tonnes of CO2. responsibly managed forests. How: Increased net growth in SCA’s own forests that cap- How: 100% Chain of Custody (CoC) certified wood raw ture CO2 from the atmosphere. A total fossil-free value chain material, with a minimum requirement of FSC Controlled with a first target to reduce fossil emissions by 50% by Wood. 75% of wood raw material is from certified forests or 2030. Increase the availability of renewable products sourced raw materials that are harvested by SCA using SCA through volume growth and innovations that offer greater retention methods. SCA’s own forestry management is to be climate benefits. Increase wind power production on SCA’s certified by FSC and PEFC. SCA’s forests shall be at least as land to 11 TWh. rich in biodiversity, nature experiences and raw material in the future as they are today.
Efficient use of resources Responsibility for people and the community Target: Zero waste, meaning nothing goes to waste. Target: An accident-free and healthy SCA. How: High raw material yield in every process to ensure the How: Zero workplace accidents. A mature heath and safety entire tree is used. Increase the processing level for the culture corresponding to phase 4 (interdependent) on the company’s waste application by finding new uses. Improve DuPont Bradley Curve™. Leaders who can address future energy efficiency through efficiency enhancements of at needs and employees who grow and develop. Contribute least 50 GWh per year1). (ESAVE program 2020–2025) and towards vibrant local communities. by minimizing emissions and waste.
1) The target is based on the company’s energy consumption in 2020 and may be adjusted due to changes in energy consumption after the discontinuation of publication paper operations at Ortviken.
137 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Strategic priorities and Group targets
Strategic priorities and sustainability targets The areas of strategic priority each correspond to a component in SCA’s sustainability platform, see the Strategy and operations section on page 49. SCA’s materiality analysis is presented on page 142.
GRI Group targets 2030 Strategic prior- Impact on Material SCA’s materiality disclosure Sustainability Overarching sustainability ities Why material value chain Governance risks 1) analysis 2) number area 3) targets 4) Supporting sustainability targets Outcome 20205)
Values To be a credible and transparent company, business Employees, sup- • Code of Conduct • Business ethics • Ethics and values 206-1 Human rights • All employees comply with • All employees receive training in the Code • 96% is based on a shared set of values derived from pliers, customers, • SCA’s Supplier • Reputational risk • Human rights Anti-corruption SCA’s Code of Conduct. of Conduct SCA’s core values of respect, responsibility and society Standard • Suppliers • Supplier audits • No violations of the Code • 7 confirmed breaches excellence that are described in SCA’s Code of Con- • SCA’s Compliance • Purchasing from suppliers who share SCA’s • 94% duct, which all employees are to comply with. It is to Council values, >98% of contract suppliers have permeate the company’s business relationships and approved SCA’s Supplier Standard interaction with stakeholders. SCA aims to establish • Audits of supplier operations using a risk- • 3 on-site audits at suppliers and a sustainable supply chain with suppliers and con- based selection approximately 3,500 on-site audits of tractors that share the company’s values. harvesting and forest contractors
Profitable growth Long-term profitability requires sustainable and Shareholders, • Financial control • Financial risks • In accordance with 201-1 N/A • Leading total shareholder • Total shareholder return • 51% profitable growth in a responsible manner. The customers, • Financial Policy • Demand and the company’s return (TSR) • Stable and increasing dividend • No dividend paid for 2019 due to the forest forms the core of SCA’s operations and profit- society, • Business develop- market price for strategy coronavirus pandemic. Dividend pro- able growth is created by growing the renewable employees, sup- ment plans SCA’s products posed for 2020 in accordance with forest resource and increasing the value generated pliers • Budget follow-up • Impact of polit- the Board’s recommendation by each tree. ical decisions • Financial stability – Investment Grade credit • Investment Grade credit rating rating
Fossil-free SCA produces and sells renewable products that Growth in the • Sustainability • Political deci- • Climate impact 305-5 Environment • Increased climate benefit • Increase total climate benefit to 15 Mt CO2 • 9.6 million tonnes CO2 world can replace fossil-based alternatives and thereby forest, SCA’s Policy sions • Green transportation from 10 to 15 million tonnes • Net uptake of CO2 in the forest • 4.4 million tonnes CO2 contribute to reducing global warming. SCA also operations, sup- • SCA’s Environ- • Climate change • Renewable energy CO2 • Increase substitution benefits from SCA’s • 6.1 million tonnes CO2 contributes to climate benefit through the net pliers, transports, mental Network products growth of the company’s forests, which absorb CO2 customers • Business develop- • 50% reduction of fossil emissions in the value • 0.86 million tonnes CO2e. Reduction from the atmosphere, and by continuously striving ment plans chain, Scope 1, 2 and 3, compared with 2019 by 5% to reduce greenhouse gas emissions from its own • Implement 11 TWh of approved wind power • 5.4 TWh value chain. capacity on SCA land by 2025
Valuable Forest is an important part of the earth’s ecosystem. SCA forests, pri- • Forest manage- • Risks linked to • Responsible forest 304-3 Environment • 100% of wood raw material • 100% CoC certified wood raw material – min- • 100% forests SCA conducts responsible forest management to vate forest ment manual the forest port- management from responsibly managed imum requirement FSC Controlled Wood Stan- preserve biodiversity and ensure long-term access owners, commu- • Quality manuals for folio • Biodiversity forests dard to renewable forest raw materials. The company nity, customers forest operations, • Biodiversity • Supplier audits • 75% of wood raw material from certified forests • 81% plays an active role in developing forest operations road construction • Climate change or harvested with SCA retention that promote low-impact forestry methods and and transport • SCA’s own forestry management certified • 100% of SCA-owned forest (forest maintain or enhance conservation values. SCA activities under FSC and PEFC operations) encourages and helps other forest owners to adopt • The company’s forests are to be at least as rich • Measures to secure habitats for responsible forest management. in biodiversity, nature experiences and raw SCA’s protected species will be material in the future as they are today defined as needed, see page 152 SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Efficient use of SCA continuously strives to improve its resource Own operations, • Sustainability • Environmental • Climate impact 302-1 Environment • Zero waste – Nothing goes • High raw material yield in every process • Measured locally per production unit resources efficiency, which contributes to better profitability optimizing the Policy impact • Resource efficiency to waste • Increase processing level and reduce handling • New target, evaluated for the first while also being economical with the planet's value chain, cus- • SCA’s Environ- • Risks at produc- • Development and costs for waste streams time in 2021 resources and reducing the impact on the environ- tomers mental Network tion plants innovation • Improve energy efficiency through efficiency • Energy efficiency program 2020 ment. Water is an essential resource and we safe- • ESAVE program • Emissions enhancements of at least 50 GWh per year corresponding to 23 GWh guard access to clean water by minimizing our emis- • SCA’s Innovation based on the company’s energy consumption sions. We work continuously to minimize waste and Network in 20206). (ESAVE program 2020–2025) look for new uses for the company’s waste streams. • Minimize emissions to water and air. Decrease • Emissions of suspended solids Through innovation and product development, emissions of suspended solids and phos- increased 7%, while phosphorous products are created that contribute to greater phorus by 10% between 2014 and 2020 emissions fell 23% compared with material efficiency for the company’s customers. the base year • Minimize landfill waste and hazardous waste • 7,704 tonnes of waste to landfill or handled as hazardous waste
Responsibility Employees are the company’s most important Employees • Sustainability • Employee- • Health and safety 403-9 Social conditions • An accident-free and • No workplace accidents resulting in absence • LTA frequency rate 5.6 accidents for people and resource. SCA secures the future need of expertise (existing and Policy related risks • Community engage- 405-1 and employees healthy SCA resulting in absence, per million the community by developing employees and being an inclusive potential), local • Health and Safety • Risks at produc- ment Labor hours worked and attractive employer that puts health and safety communities Policy tion plants • Diversity • A mature health and safety culture. Move the • New target, evaluated for the first first. Through the business, jobs are generated, both • HR Policy • Skills supply health and safety culture to phase 4 on the time in 2021 directly and indirectly. SCA develops together with, • Steering committee DuPont Bradley Curve™ and contributes to, the communities in which the ZERO • Develop leaders who can address future needs • Green leadership index7) company operates. • SCA’s Occupa- • Employees who grow and develop • Green engagement index7) tional Health and • Contribute toward viable local communities • 58% of funds were paid to northern Safety Network Sweden
1) See section Risks and risk management. 5) The non-financial multi-year summary presents a selection of key figures. 2) See section Governance and materiality. 6) The target may be adjusted due to changes in energy consumption after the 3) According to the Swedish Annual Accounts Act (ÅRL) and UN Global Compact. discontinuation of publication paper operations at Ortviken. 4) Group targets have 2019 as base year. 7) Result from the All Employee Survey 2020.
138 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Strategic priorities and Group targets
Strategic priorities and sustainability targets The areas of strategic priority each correspond to a component in SCA’s sustainability platform, see the Strategy and operations section on page 49. SCA’s materiality analysis is presented on page 142.
GRI Group targets 2030 Strategic prior- Impact on Material SCA’s materiality disclosure Sustainability Overarching sustainability ities Why material value chain Governance risks 1) analysis 2) number area 3) targets 4) Supporting sustainability targets Outcome 20205)
Values To be a credible and transparent company, business Employees, sup- • Code of Conduct • Business ethics • Ethics and values 206-1 Human rights • All employees comply with • All employees receive training in the Code • 96% is based on a shared set of values derived from pliers, customers, • SCA’s Supplier • Reputational risk • Human rights Anti-corruption SCA’s Code of Conduct. of Conduct SCA’s core values of respect, responsibility and society Standard • Suppliers • Supplier audits • No violations of the Code • 7 confirmed breaches excellence that are described in SCA’s Code of Con- • SCA’s Compliance • Purchasing from suppliers who share SCA’s • 94% duct, which all employees are to comply with. It is to Council values, >98% of contract suppliers have permeate the company’s business relationships and approved SCA’s Supplier Standard interaction with stakeholders. SCA aims to establish • Audits of supplier operations using a risk- • 3 on-site audits at suppliers and a sustainable supply chain with suppliers and con- based selection approximately 3,500 on-site audits of tractors that share the company’s values. harvesting and forest contractors
Profitable growth Long-term profitability requires sustainable and Shareholders, • Financial control • Financial risks • In accordance with 201-1 N/A • Leading total shareholder • Total shareholder return • 51% profitable growth in a responsible manner. The customers, • Financial Policy • Demand and the company’s return (TSR) • Stable and increasing dividend • No dividend paid for 2019 due to the
forest forms the core of SCA’s operations and profit- society, • Business develop- market price for strategy coronavirus pandemic. Dividend pro- 2020 REPORT SUSTAINABILITY AND ANNUAL SCA able growth is created by growing the renewable employees, sup- ment plans SCA’s products posed for 2020 in accordance with forest resource and increasing the value generated pliers • Budget follow-up • Impact of polit- the Board’s recommendation by each tree. ical decisions • Financial stability – Investment Grade credit • Investment Grade credit rating rating
Fossil-free SCA produces and sells renewable products that Growth in the • Sustainability • Political deci- • Climate impact 305-5 Environment • Increased climate benefit • Increase total climate benefit to 15 Mt CO2 • 9.6 million tonnes CO2 world can replace fossil-based alternatives and thereby forest, SCA’s Policy sions • Green transportation from 10 to 15 million tonnes • Net uptake of CO2 in the forest • 4.4 million tonnes CO2 contribute to reducing global warming. SCA also operations, sup- • SCA’s Environ- • Climate change • Renewable energy CO2 • Increase substitution benefits from SCA’s • 6.1 million tonnes CO2 contributes to climate benefit through the net pliers, transports, mental Network products growth of the company’s forests, which absorb CO2 customers • Business develop- • 50% reduction of fossil emissions in the value • 0.86 million tonnes CO2e. Reduction from the atmosphere, and by continuously striving ment plans chain, Scope 1, 2 and 3, compared with 2019 by 5% to reduce greenhouse gas emissions from its own • Implement 11 TWh of approved wind power • 5.4 TWh value chain. capacity on SCA land by 2025
Valuable Forest is an important part of the earth’s ecosystem. SCA forests, pri- • Forest manage- • Risks linked to • Responsible forest 304-3 Environment • 100% of wood raw material • 100% CoC certified wood raw material – min- • 100% forests SCA conducts responsible forest management to vate forest ment manual the forest port- management from responsibly managed imum requirement FSC Controlled Wood Stan- preserve biodiversity and ensure long-term access owners, commu- • Quality manuals for folio • Biodiversity forests dard to renewable forest raw materials. The company nity, customers forest operations, • Biodiversity • Supplier audits • 75% of wood raw material from certified forests • 81% plays an active role in developing forest operations road construction • Climate change or harvested with SCA retention that promote low-impact forestry methods and and transport • SCA’s own forestry management certified • 100% of SCA-owned forest (forest maintain or enhance conservation values. SCA activities under FSC and PEFC operations) encourages and helps other forest owners to adopt • The company’s forests are to be at least as rich • Measures to secure habitats for responsible forest management. in biodiversity, nature experiences and raw SCA’s protected species will be material in the future as they are today defined as needed, see page 152
Efficient use of SCA continuously strives to improve its resource Own operations, • Sustainability • Environmental • Climate impact 302-1 Environment • Zero waste – Nothing goes • High raw material yield in every process • Measured locally per production unit resources efficiency, which contributes to better profitability optimizing the Policy impact • Resource efficiency to waste • Increase processing level and reduce handling • New target, evaluated for the first while also being economical with the planet's value chain, cus- • SCA’s Environ- • Risks at produc- • Development and costs for waste streams time in 2021 resources and reducing the impact on the environ- tomers mental Network tion plants innovation • Improve energy efficiency through efficiency • Energy efficiency program 2020 ment. Water is an essential resource and we safe- • ESAVE program • Emissions enhancements of at least 50 GWh per year corresponding to 23 GWh guard access to clean water by minimizing our emis- • SCA’s Innovation based on the company’s energy consumption sions. We work continuously to minimize waste and Network in 20206). (ESAVE program 2020–2025) look for new uses for the company’s waste streams. • Minimize emissions to water and air. Decrease • Emissions of suspended solids Through innovation and product development, emissions of suspended solids and phos- increased 7%, while phosphorous products are created that contribute to greater phorus by 10% between 2014 and 2020 emissions fell 23% compared with material efficiency for the company’s customers. the base year • Minimize landfill waste and hazardous waste • 7,704 tonnes of waste to landfill or handled as hazardous waste
Responsibility Employees are the company’s most important Employees • Sustainability • Employee- • Health and safety 403-9 Social conditions • An accident-free and • No workplace accidents resulting in absence • LTA frequency rate 5.6 accidents for people and resource. SCA secures the future need of expertise (existing and Policy related risks • Community engage- 405-1 and employees healthy SCA resulting in absence, per million the community by developing employees and being an inclusive potential), local • Health and Safety • Risks at produc- ment Labor hours worked and attractive employer that puts health and safety communities Policy tion plants • Diversity • A mature health and safety culture. Move the • New target, evaluated for the first first. Through the business, jobs are generated, both • HR Policy • Skills supply health and safety culture to phase 4 on the time in 2021 directly and indirectly. SCA develops together with, • Steering committee DuPont Bradley Curve™ and contributes to, the communities in which the ZERO • Develop leaders who can address future needs • Green leadership index7) company operates. • SCA’s Occupa- • Employees who grow and develop • Green engagement index7) tional Health and • Contribute toward viable local communities • 58% of funds were paid to northern Safety Network Sweden
139 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Strategic priorities and Group targets
SCA and UN Sustainable Development Goals Through Efficient use of resources, SCA contributes to goals 3, The UN’s 17 Sustainable Development Goals played an 6, 7, 8, 9, 11, 12, 13 and 14 with effective control and programs to important part in work to develop SCA’s sustainability platform. reduce process emissions to water and work to minimize emis- SCA views the goals as a whole and makes a direct or indirect sions to water and marine environments. contribution to all of these goals. This is described in more detail on sca.com. The examples below show how the company con- Through Responsibility for people and the community, SCA con- tributes to the goals through each component in SCA’s sustain- tributes to goals 3, 4, 5, 8, 10, 11, 16 and 17 with healthy and safe ability platform. work environments and job creation and regional development.
Through the area of Values, SCA contributes to goals 1, 2, 5, 8, 10, 12, 16 and 17 with its demands on suppliers, work against corruption and partnership processes on environmentally certi- fied forest operations and within the framework of the UN Global Compact.
Through Profitable growth, SCA contributes to goals 8 and 10 with long-term job creation, good working conditions and skills development.
Through Fossil-free world, SCA contributes to goals 7, 12, 13 and 14. One example is the company’s renewable products that can contribute to reduce fossil dependency and thereby more sus- tainable consumption combined with climate benefits.
Through Valuable forests, SCA contributes to goals 3, 6, 9, 11, 12, 13, 15 and 17 with its responsible and active forest manage- ment, including FSC and PEFC certificates and recreating wetlands. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
140 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Governance and materiality
Governance and materiality network and by SCA’s Sustainability Council. Any discrepancies are reported using the Group-wide discrepancy procedures and Sustainability governance corrective measures are identified and implemented. SCA’s sustainability work is an integrated part of the company’s business model and operations. The sustainability work helps External initiatives and membership in organizations the company strengthen competitiveness, reduce risks and and certifications costs, and attract talent and investors. SCA monitors and wants to contribute in various ways toward initiatives aimed at achieving a more sustainable world. SCA is The President and CEO bears the overall responsibility for the a member of the UN Global Compact, an initiative aimed at con- control of SCA’s business in the field of sustainability. SCA’s sus- vincing companies to take responsibility for the UN’s ten princi- tainability agenda is headed by the Group’s Sustainability ples in the areas of human rights, working conditions, the envi- Council, which includes members of the Executive Management ronment and anti-corruption. SCA is also active in a number of and the Group’s Sustainability Director. The Sustainability international, national and regional trade organizations. Council is led by the Group’s CFO. In addition, a number of cross-functional networks exist to manage and coordinate SCA supports the 2030 Agenda and the UN’s 17 Sustainable issues of fact, such as the environment and work environment. Development Goals. The company works with goals as a whole and makes a direct or indirect contribution to all of these goals. Control and follow-up of sustainability work follows the same The goals form an important basis for the company’s materiality structure as other operations in SCA Group. A description can be analysis. found in the Corporate Governance Report and in the illustration 2020 REPORT SUSTAINABILITY AND ANNUAL SCA below. The sustainability agenda is based on SCA’s set of values SCA is committed to active and responsible forest management, and regulated through the Group’s policies, where the Code of and supports the two international certification systems for for- Conduct and Sustainability Policy form the basis of sustainability ests and forest raw materials, the Forest Stewardship Council work. (FSC) and the Programme for the Endorsement of Forest Certifi- cation (PEFC). SCA is active at both international and national The Group targets, together with the sustainability target, are levels. Furthermore, SCA works to raise awareness of how active formulated based on the materiality analysis and on strategic pri- forest management and increasing the use of forest products orities. These are supplemented at local level with unit-specific can help to combat climate change. SCA is actively working to targets. Risks linked to the field of sustainability are included in protect the forest’s biodiversity. This is achieved through its own the Group’s total risk management, which is presented in the initiatives and through cooperation in various research programs Board of Directors’ Report. and initiatives. One such example is business@biodiversity Sweden. Most of SCA’s operations are certified in accordance Follow-up of sustainability work with ISO 14001, 50001, 9001 and 45001, as detailed on sca.com. Follow-up and evaluation of sustainability work complies with SCA’s procedures for self-assessment, internal control and SCA wants to contribute to the transformation to a fossil-free audits, as described in the Corporate Governance Report. Fol- society and is a member of the Fossil Free Sweden initiative. low-up is conducted at unit level together with other monitoring SCA participates in the WWF Environmental Paper Company of targets, and aggregated at Group level. The outcome of the Index, and is a member of the WWF Global Forest & Trade Net- Group-wide targets is monitored by the Group’s cross-functional work (GFTN).
Control and follow-up of sustainability work Control and follow-up of sustainability work follows the same model as other operations in SCA.
Annual General Meeting External auditors
Board of Directors Audit Committee Internal audit
President and CEO
Executive Management Team Internal control
Sustainability Council
Cross-functional networks
141 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Governance and materiality
Stakeholder dialogues SCA engages in continuous dialogue with various stakeholders Key stakeholder issues in 2020 in order to raise awareness of the areas that stakeholders con- 1. Coronavirus pandemic – impact on staff, the company sider should be prioritized and to continuously improve the com- and the market pany’s value creation. SCA identifies its primary stakeholders 2. Discontinuation of publication paper based on their interests and potential influence on the Group and 3. Various matters concerning the forest and forest the Group’s operations, and their material impact on the Group’s operations business. This takes various forms depending on the stakeholder 4. Climate – the company’s work, product advantages group and the part of the business affected. 5. The EU Green Deal and taxonomy The business areas maintain a close dialogue with their cus- tomers and follow up customer satisfaction through surveys, face-to-face meetings and third-party assessments. SCA regu- Materiality analysis larly meets investors and analysts. The Group performs All SCA’s materiality analysis is based on several different elements: Employee Surveys and annual target and performance manage- Stakeholder dialogues, targeted surveys, summaries of market ment reviews for its employees. Moreover, SCA communicates trends and the company’s and management’s strategic priori- with other groups and individuals in matters that have a major ties. The materiality analysis forms the basis for SCA’s strategic impact on society in general and local communities in particular, direction and priorities in its sustainability work. and holds regular meetings with individuals living near SCA’s operations. SCA also maintains a close dialogue with various SCA conducts a materiality analysis every two years. The most NGOs that represent activities impacted by SCA’s work, such as recent was conducted in 2019 and the conclusions are pre- retention organizations. sented in the Materiality analysis illustration. The results show the topics that are of greatest significance for SCA’s business Stakeholder dialogues provide insights into the expectations of and values program based on the analysis conducted. various interest groups, help to cultivate long-standing relation- ships and continuously improve the Group’s operations. In addi- In 2019, some 4,000 people were interviewed as part of a tar- tion, the dialogues provide valuable information when the Group geted survey. It was conducted to obtain an overview of the pri- assesses its sustainability program and prioritizes sustainability orities of the stakeholder groups. The survey included investors, initiatives. The Stakeholder Dialogues table offers an overview of shareholders, analysts, customers, end-consumers, suppliers, the main stakeholder groups and a summary of the year’s dia- NGOs, politicians and employees. The company’s contributions logues and the key conclusions drawn by SCA from the dia- and challenges linked to the UN’s 17 Sustainable Development logues. Goals were included as part of the analysis. The interviews were conducted by an external party.
The following areas were given top priority: Health and safety, responsible forestry, climate impact, ethics and values as well as resource efficiency. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Materiality analysis Areas that are of greatest significance for SCA based on the materiality analysis from 2019.
Customer satisfaction – Profitable growth – Shareholder value
• Water • Development and innovation • Occupational health and safety • Anti-corruption • Green transportation • Responsible forest management • Integration • Renewable energy • Climate impact • Human rights • Emissions • Ethics and values • Waste • Supplier audits • Resource efficiency • Tax • Skills supply • Biodiversity • Diversity • Community engagement • Indigenous people
Prioritized Highly prioritized
142 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Governance and materiality
Stakeholder dialogues Interaction with the company’s stakeholders was modified in 2020 in response to the coronavirus pandemic. Few physical meetings and excursions took place in 2020 compared with a normal year. These were replaced with virtual events where possible.
Stakeholder How we conduct groups dialogues Main topics How we address the issues
Customers Customer visits, Climate benefit, environmental • Customer surveys and customer visits and interviews, partici- impact, ecolabelling, fiber • Visits by customers to show our company’s value chain consumers pation in customer sourcing, forestry, biodiversity, • Dialogue and onsite visits to demonstrate responsible forest management events and semi- human rights, reindeer herding, • Dialogue about climate footprint, FSC and PEFC certification, product safety nars, trade fairs, occupational health and safety, • Training in Code of Conduct and the Supplier Standard mailings, website, customer benefits, resource effi- • Development of new products and service concepts together with customers. social media ciency, innovation, quality, Life cycle management of products product safety, discontinuation • Visit to customers by SCA experts in various fields of publication paper • Customers who perform audits of SCA’s operations • Customer magazines, for example SCA Wood Magazine and New Ways • Ecolabels and so forth, such as WWF ECPI • Participation at trade fairs at national and international levels
Employees Performance Health and safety, values and • The Group’s ZERO initiative for developing a health and safety culture, ISO 45001 2020 REPORT SUSTAINABILITY AND ANNUAL SCA reviews, workplace workplace culture, attracting and certification (previously OHSAS 18001) meetings, work recruitment, skills development, • Risk analyses and management of pandemic councils, online sur- succession planning, compensa- • Consultation activities and separate meetings concerning restructuring in Sundsvall veys, intranet, tion and benefits, business ethics, • Use of the discussion tool “How do we act?” and training in SCA’s Code of Conduct, internal courses, working conditions, resource effi- anti-corruption and business ethics management meet- ciency, environmental impact, • Participation in student fairs and partnerships with the educational sector ings product development, strategic • SCA’s podcast Ingenjörspodd and the staff magazine SCA Inside development, discontinuation of • Introductory course for new employees, skills-enhancement activities, leadership publication paper training, Early career program and internships
Investors Investor meetings in Financial performance, market • AGM March 31, 2020 and owners conjunction with, for outlook, dividend and financial • Regular investor and analyst meetings during the year example, interim targets, areas of growth, forest • Roadshows in conjunction with quarterly accounts reports, capital valuation, risk management, cli- • Risk management as part of the Board of Directors’ Report in the Annual report market days, risk mate impact, sustainability, cor- • Capital market day, December 3, 2020 reports, the AGM, porate governance, discontinua- interviews, website tion of publication paper
Suppliers Follow-up meetings, Health and safety, supplier audits, • SCA’s Supplier Standard as part of contracts request for tenders business ethics, human rights, • Supplier assessments and follow-up meetings and procurements, energy consumption, resource • Risk-based supplier audits performed on-site interviews, website efficiency, climate impact, discon- • Training of purchasing staff tinuation of publication paper • Assessing countries and suppliers from a sustainability perspective • EcoVadis platform • Follow-up meetings with individual suppliers
Private Forest owner meet- Long-term and sustainable for- • Business contacts on an ongoing basis during the year forest ings, physical and estry, management methods, for- • Customer satisfaction interviews with private forest owners owners virtual meetings, estry plans, ownership rights, • A small number of forest owner meetings in 2020 due to the pandemic customer magazine, forest management certification, • Further development of Skogsvinge™ for greater customer value website, social nature conservation, profitability • Collaboration with Skogscertifiering Prosilva AB (group certificate for private forest media owners) • “Din Skog” customer magazine for forest owners
NGOs Meetings con- Forest management, biodiversity, • Stakeholder dialogues cerning specific climate and environmental issues, • Memberships and involvement in organizations such as the Swedish Forest Industries issues, interviews, resource efficiency, green energy, Federation, the Confederation of European Paper Industries (CEPI), FSC and PEFC reporting to ecola- human rights, hunting, reindeer • Involvement in the revision of the Swedish FSC standard, other standards and bels and sustain- herding ecolabels ability indexes, web- • Onsite visits to the company’s forests sites • Collaboration with BirdLife to restore wetlands and improve conditions for great owls, such as Ural owls • Roundtable discussions on methods to monitor and measure biodiversity
Society Dialogue meetings, Occupational health and safety, • Dialogues with regulators, government authorities, municipalities and lobbyists local events, public environmental issues, local • Consultation and dialogue about investments, permits, employment and other local consultation, inter- issues, renewable energy, rein- issues views, websites deer herding, labor market, edu- • Consultation meetings with local Sami communities and residents living near to SCA’s cation, community engagement, industries and forests diversity issues, human rights • Board representation or participation in organizations for regional development, such as chambers of commerce and Junior Achievement Sweden in the northern counties. • Brand surveys. Participation in “Skogen i skolan”. Kalla Champs to encourage young people to move around and discover the forest • Supervisory and annual reporting to government authorities, for example environ- mental reports
143 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Values
Values
Values SCA’s Code of Conduct applies to all employees within the SCA has a corporate culture based on SCA’s values. This is Group and all employees receive regular training in the Code. expressed in the way SCA treats people, does business and con- It applies to all markets in which SCA conducts operations. ducts its operations. Human rights are to be respected by SCA and All new employees and temporary employees are educated in its business partners. SCA’s Code of Conduct is the basis for its cor- the Code as part of their introduction. Every third year, all porate culture and employees receive regular training in the Code. employees take part in a refresher course. The percentage of employees educated in the Code of Conduct amounted to about Code of Conduct 96% at the end of 2020. The Code of Conduct also forms the SCA’s Code of Conduct is a framework for putting the Group’s basis for SCA’s Supplier Standard. core values – responsibility, excellence and respect – into prac- tice and is to ensure that SCA’s employees comply with the Human rights and the equal value of everyone Group’s core values and do not take part in unethical transac- Human rights is one important aspect of SCA’s Code of Con- tions and practices. SCA has zero tolerance for misbehavior in duct, which forms the basis of the Group’s company culture and the workplace, such as discrimination and sexual harassment. business relationships. SCA does not tolerate child labor or any other form of forced labor in its own facilities or the operations The Code is the Group’s foremost steering document in terms of of any business partner. SCA complies with applicable national sustainability and constitutes, together with SCA’s Sustainability laws and international standards on minimum age wherever the Policy, the basis of the Group’s sustainability agenda. The Code, company operates. SCA promotes fair working conditions, which is adopted by the Board of Directors, details the guidelines health and safety, the trade union rights of employees and the for business ethics (including anti-corruption), health and safety, right to collective bargaining. SCA has been a member of the employee relations, respecting human rights, the environment and UN Global Compact since 2008. Risks linked to human rights society that every employee is to follow. The Code is based on the have primarily been identified in business relationships, health UN Declaration of Human Rights, the International Labour Organi- and safety and the use of land, refer to the section on risks in sation’s (ILO) Core Conventions, the Organisation for Economic the Board of Directors’ Report. All forms of suspected violations Cooperation and Development’s (OECD) Guidelines for Multina- of human rights are taken very seriously and dealt with in the tional Enterprises, and the Ten Principles of the UN Global Com- same manner as other suspected violations of SCA’s Code of pact. More about SCA’s Code of Conduct can be found at sca.com. Conduct. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
144 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Values
Business ethics comprises about 1,000 employees. Management teams and SCA bases its business activities on honesty, integrity and other relevant individuals also receive training on these issues responsible business practices. The company must comply with in the form of mini-seminars. applicable laws, regulations and SCA policies and instructions. Bribery and any other form of corrupt business practice are Anti-trust strictly prohibited. Neither SCA nor anyone acting on SCA’s SCA complies with competition laws and strives to combat anti- behalf may authorize, offer or make available any payments, gifts trust, price fixing, the carving up of customers or geographic or other benefits that could affect or appear to affect objectivity markets, bid rigging or abuse of a dominant position. SCA has in business decisions or the actions of a government official. All established programs to increase knowledge among employees financial information must be accurately reported in a non-mis- of competition law. The target group is employees with market- leading manner in accordance with SCA’s accounting practices. related contact with competitors and includes about 290 employees. SCA has guidelines for compliance with competition Anti-corruption law. Every year these are distributed to the target group, who Corruption is to use your position to achieve an unfair advantage must confirm that they have read the material. In addition to for your own gain or the gain of another person. This includes training for employees and new employees in the relevant target bribery that entails providing, offering, receiving or requesting group, regular seminars are held that discuss issues and news in an unfair benefit. The Group must conduct all activities in accor- the area. dance with applicable laws and regulations and does not tolerate any form of corruption or bribery. Work against corruption is Whistleblower system included in SCA’s Code of Conduct. SCA’s instructions for Every employee can report suspected violations of the Code of 2020 REPORT SUSTAINABILITY AND ANNUAL SCA anti-corruption establish rules to prevent anti-corruption in the Conduct. The violation can be reported to a line manager, human Group’s operations regardless of country. resources manager, legal counsel or union representative. There is also a whistleblower function available at sca.com which is All of SCA’s employees are trained in the Group’s Code of also open to individuals who do not work at SCA. The com- Conduct, which includes a section dealing with business ethics. plaints, which may be submitted anonymously, are investigated Employees in a senior position and/or with external contacts are confidentially, promptly and professionally by specially given additional training in anti-corruption. The target group appointed investigators taking into account current personal
Compliance with SCA’s Code of Conduct, laws and regulations Reported cases and remarks in 2020 (outcome in 2019 in brackets)
SCA uses a number of methods to safeguard compliance All employees are encouraged and have the opportunity to with prevailing law and the company’s Code of Conduct. report incidents and risk observations that could result in These include risk evaluation, audits by external and internal work environment risks. The reports are incorporated in the auditors, the company’s internal control, incident reporting work of continuous improvements. and controls in connection with acquisitions. External environment Code of Conduct It is important to engage in active dialogue with communities In 2020, 17 cases of potential breaches of the Code of Con- that can be affected by SCA’s operations. This is part of the duct were reported and investigated. They included cases of Group’s stakeholder dialogues and encompasses the entire harassment, theft, conflicts of interest and inappropriate Group’s operations, refer to the Stakeholder dialogues sec- behavior. Of these, 7 (8) were confirmed as breaches of the tion. Dialogue may, for example, be conducted as public Code. Three inquiries were ongoing at the end of the year, all meetings or be based on opinions received. All environ- from the end of the year. mental remarks are investigated in accordance to SCA’s pro- cedures and measures are taken where possible. In 2020, Anti-corruption and competition laws 160 (81) remarks were registered. These remarks concerned There are no ongoing (0) cases against SCA related to noise, odors, emissions to surrounding areas or the forest breaches of anti-corruption or competition law. Nor has SCA operations. Employees also have the opportunity to report been subject to any legal process during the current or pre- incidents that could impact the environment. The reports are ceding year. incorporated in the work of continuous improvements.
Health and safety SCA’s operations have been granted permits by the authori- Serious workplace accidents and health and safety incidents ties. These permits are associated with a number of environ- are reported to the relevant authority in accordance with cur- mental conditions that must be complied with. The authori- rent regulatory requirements. In those cases when the ties are informed in the event of exceedances. Corrective authority considers that an error was made, a case may be action is taken both urgently and in the longer term to reduce submitted to the public prosecutor for review. In 2020, environmental impact. During 2020, 23 (24) environmental 0 incidents resulted in the public prosecutor initiating legal matters were dealt with by the authorities. 3 (2) of these mat- proceedings or issuing a punishment order. From previous ters resulted in penalties during the year. These concerned years, 0 (1) incidents resulted in the issue of a punishment surface water and missed analyses at BioNorr and fencing order or corporate fine in 2020. within the operating area of crushed aggregate products.
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Values
SCA’s process for a sustainable supply chain
It is important that the company’s suppliers share our values. Regular reviews of risk and improvement potential enable us to develop together.
Agreements where SCA’s Approved Updated Audit of selected Correction of Supplier Standard supplier risk assessment suppliers deviations found accepted by supplier
Approved supplier SCA uses a process to qualify and approve suppliers that includes a review of finances, work environment, environment, quality and, where needed, specific Evaluation of checks. conducted audits SCA’s Supplier Standard The Standard is based on SCA’s Code of Conduct and international standards. It has been formulated to ensure that suppliers share the company’s values and to minimize risks in the supply chain. The Standard covers areas such as business ethics, human rights, working conditions, environmental impact and product safety. Collaboration with supplier terminated if deviations are serious
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 data legislation. Complaints covered by the whistleblower There are well-established procedures for supplier assessments, system and other cases of suspected violation of the Code of control and visits on site in regard to harvesting and silvicultural Conduct are managed in accordance with SCA’s procedures. services contractors. The requirements correspond to SCA’s Even if an allegation cannot be substantiated, preventive actions Supplier Standard and have been supplemented with require- may be implemented. The scope, outcome and actions taken ments and controls linked to forest and forest operations, concerning reported cases are followed up by SCA’s Compli- including PEFC’s supplier audits. Follow-up meetings on site ance Council. were only marginally impacted by the ongoing coronavirus pan- demic and about 3,500 were conducted in 2020. Sustainable supply chain SCA wants to ensure safe and high-quality goods and services SCA has agreements with a large number of suppliers. For for its customers and consumers, produced and delivered with timber supply from private forest owners, SCA has created a respect for people and nature. Potential business partners are purchasing organization with about 80 timber purchasers, dis- evaluated before cooperation is initiated. The evaluation com- tributed between local offices across the region. Through this prises both business issues and issues concerning existing poli- organization, SCA has business relationships with approximately cies and processes regarding, for example, the work environ- 18,000 private forest owners. Timber sourced from other forest ment and business ethics. companies and large forest owner associations is managed by a central purchasing function that is also responsible for any To ensure that SCA’s suppliers share the company’s set of timber imports. About 170 contractors are responsible for most values, SCA has formulated a Supplier Standard with which sup- of the harvesting, about 100 for timber transportation to SCA’s pliers must comply. SCA’s Supplier Standard is based on the industries and about 100 for forest management measures. Group’s Code of Conduct, (see sca.com), human rights and international standards. SCA uses an external system to evaluate For most important input goods and services, there are a sustainability work by suppliers. Audits are also performed number of suppliers available in the market. This is also often on-site based on the risk assessment. Early in 2020, 3 audits (3) the case for suppliers of maintenance and building services for were held before the coronavirus pandemic limited the possi- industrial facilities. bility of site visits.
146 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Profitable growth
Profitable growth
Profitable growth in a responsible manner is an important aspect Implementing the strategy – Restructuring in of sustainable development and represents one component in Sundsvall SCA’s sustainability platform. SCA’s strategy for profitable During the year, SCA made a decision to exit the publication growth is described in the Strategy section on pages 18–23. paper product category and invest in the production of chemi- Profitable growth generates value for SCA’s stakeholders and thermomechanical pulp (CTMP) at the Ortviken industrial site. utilizes SCA’s industrial ecosystems to create value in, by and Demand for publication paper has been in decline for several from the company’s large forest holding. The company’s opera- years due to increased digitalization and new reading and adver- tions also create profitable growth for customers, suppliers and tising habits. This decline accelerated during the pandemic. The communities where the company operates. discontinuation of publication paper operations will affect about 800 employees. Those employees who lose their job will receive Attractive investment counseling and SCA will actively work with the municipality and 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Through the realization of the company’s strategy for profitable authorities to facilitate the transition. SCA is also endeavoring to growth, SCA is to deliver a leading total shareholder return, expand Ortviken as an industrial site by establishing new activi- meaning share price appreciation including dividends, and a ties. One such example is the lease of part of the facility to the stable and increasing dividend to shareholders. The outcome for company Renewcell, which will recycle clothes and produce new 2020 is presented on page 58. A stable financial position is a fibers to the textile industry. prerequisite and foundation for investing in growth. This is mea- sured by the company holding an Investment Grade credit rating, see page 70.
147 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Fossil-free world
Fossil-free world
Climate impact and climate benefits SCA has chosen to group the products as wood products, pulp SCA wishes to contribute to limit global warming and works pro- and paper, and renewable energy. Substitution factors for each actively to reduce climate impact. This takes various forms: group are presented on sca.com. The company calculates the through reducing fossil emissions in the value chain, increasing potential for all supplied products. Calculations for pulp and forest uptake of CO2 from the atmosphere, and through the com- paper products are conservatively estimated and the effect is pany’s products, which are renewable and replace fossil alterna- measured as energy recovery. The model does not take into con- tives. SCA also enables others to become fossil-free by pro- sideration the climate effect of the storage of biogenic carbon in viding access to renewable energy in various forms. SCA’s target the products during their service life nor that fiber is recycled and is to increase climate benefit from 10 to 15 million tonnes of CO2 used several times. between 2019 and 2030. This will be achieved by net growth in SCA’s own forests that bind CO2, by reducing fossil emissions in In 2020, the total climate benefit decreased from 10.5 to 9.6 mil- the value chain by 50% by 2030, by increasing the volume of lion tonnes CO2 The decrease is primarily due to increased har- renewable products and by using innovation to develop products vesting from SCA-owned forest as a result of wetter weather. Net that offer greater climate benefits. forest growth decreased as a result. Fossil emissions in the value chain fell 5% in total and in industrial processes by 14%. Substi- The company’s total climate benefit is calculated using the tution benefits were largely unchanged as the total volume sold model published by SCA in 2019, see sca.com, and comprises declined slightly. The rise in pulp production does not fully com- three components: pensate for lower publication paper production. • Uptake in SCA’s own forest, where 1 m3fo in net growth corre- Net growth in SCA’s forests bound 4.4 (5.4) million tonnes of CO2 sponds to an uptake of 1,375 tonnes/m3fo CO2 from the atmo- sphere. This is the same factor as used in Sweden’s national in 2020, refer to the explanation above. Growth can be enhanced reports. through responsible and active forest management, the develop- ment of seedling material, the use of fast-growing contorta pine • Fossil emissions in the value chain, meaning from the forest on suitable land and through fertilization. The rate of harvesting operations to the customers’ gate. Emissions are calculated is lower than the growth, which leads to a net growth and thereby using the GHG protocol and encompass Scope 1, 2 and 3. a net uptake of CO2 from the atmosphere. • The climate benefit that arises when SCA’s products replace fossil materials and the equivalent amount of fossil carbon The company’s products provide climate benefit as they replace remains in the ground, is referred to as the substitution effect. fossil alternatives or materials with a greater climate impact, such as steel, concrete and plastic. In 2020, the substitution SCA ANNUAL AND SUSTAINABILITY REPORT 2020
SCA’s climate benefit Corresponds to fossil emissions from Sweden’s passenger cars
SCA’s climate benefit Mtonnes 9.6 6 million tonnes 4 of CO2 2
Climate benefit 0 in million tonnes of CO2e 2020 2019 Net uptake in own forest 4.4 5.4 Emissions -2 Net uptake Product Products, substitution effect 6.1 6.0 of forest substitution in the Value chain (Scope 1, 2 and 3) –0.9 –0.9 value chain 2019 2020 Total climate benefit 9.6 10.5
The table shows SCA’s climate benefit in accordance with the model The change between the years is explained in the described by Holmgren and Kolar, see sca.com above text.
148 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Fossil-free world
effect amounted to about 6.1 (6.0) million tonnes of CO2. This and by leasing out land for wind power production. In 2020, dis- excludes the effect of the removal of CO2 from the atmosphere trict heat deliveries amounted to 0.3 TWh (0.5), corresponding to for many years when wood material is used in buildings or furni- heating almost 30,000 homes. At the end of 2020, installed wind ture or when fiber-based packaging and paper is collected and power capacity amounted to 5.4 TWh (4.4) per year. Through its reused as recovered fiber. Continued work with innovation and energy efficiency, the expanded pulp mill in Östrand contributes development will provide new opportunities to replace fossil to a surplus of green electricity of 0.4 TWh (0.3), corresponding materials and thereby further increase climate benefit from to a midsize power station. forest-based products. EU Sustainable Finance Taxonomy SCA’s objective is to make the entire value chain fossil-free. EU is devising a framework to help financial market participants One interim target is to reduce fossil emissions in the value chain steer capital toward investments that stimulate sustainable by 50% between 2019 and 2030, which is in line with the Paris development. The framework, the taxonomy, will require com agreement’s 1.5°C target. Through systematic work with effi- panies to present reports that allow stakeholders to assess ciency enhancements and a transition to biofuels, emissions how large a part of the company’s operations are in line with the from SCA’s industries have halved since 2010 and industrial criteria defined in the taxonomy. The taxonomy’s criteria are yet processes are currently 95% fossil-free. The emission of green- to be decided. SCA will present the company’s outcome on house gases across the value chain fell during the year by 5% sca.com and update the information on an ongoing basis. and amounted to 0.86 (0.91) million tonnes of CO . 2 • The EU has defined six environmental objectives as part of the
taxonomy. The company’s operations are to substantially con- 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Some 35% (35) of fossil emissions in the value chain are from tribute to at least one of the environmental objectives without own operations and from purchased electricity while about 65% causing significant harm to any of the other objectives. SCA (65) are from sources outside the company’s facilities. The single makes a positive contribution to all six of these environmental largest source is transportation which accounts for 50% of total objectives, see sca.com. emissions. The company is striving in various ways to reduce cli- mate impact, for example through energy-efficiency measures, • SCA has worked for some time to promote responsible forest choice of fuel and the optimization of the logistics system, as operations and is active in the continued development of forest well as choice of transport mode, load utilization, choice of operations based on new knowledge. SCA’s forest operations transport route and ecodriving. The investment to increase kraft- have been certified under FSC for more than twenty years. liner capacity at Obbola will remove another source of fossil oil of Forest operations are also certified under PEFC. approximately 8,000 m3. • Over the past decade, SCA has halved the climate impact of its own operations. SCA provides access to renewable energy by delivering surplus heat from the company’s plants as district heating to local • SCA helps many other businesses fulfill the taxonomy by municipalities, selling pellets and unprocessed biofuels, selling supplying and increasing access to renewable materials and co-generated electricity, selling tall oil to process into biofuels renewable energy.
Greenhouse gas emissions Carbon emissions from Carbon emissions from in the value chain industry, fossil CO2 transportation, fossil CO2
ktonnes ktonnes 150 500 Scope 1 29% 125 Scope 2 6% 400 100 Scope 3 65% 300 75 200 In 2020, fossil emissions from the value chain, 50 from forest operations to the customers’ gate, 25 100 amounted to about 0.86 million tonnes of CO2e. This compares with the total climate benefit from 0 0 SCA’s operations of approximately 9.6 million 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 tonnes of CO2, see above. Scope 1 includes emissions from SCA’s own vessels. Impact of pulp expansion project
Emissions in million tonnes of CO2e:
Scope 2020 2019 SCA is working actively to reduce fossil CO2 In 2020, emissions decreased slightly, mainly 1. Direct emissions 0.25 0.28 emissions. Since 2010, emissions of green- due a reduction in transportation to other con- house gases have halved if the impact of the tinents. A reduction in the share of imported 2. Purchased electricity pulp expansion project 2018 is excluded. forest raw material also contributed to shorter and energy 0.05 0.06 During the rebuilding and ramp up, a higher transport routes. 3. Purchased goods and proportion of oil was used. services 0.56 0.57 Total for scopes 1–3 0.86 0.91
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Fossil-free world
TCFD
The Task Force on Climate-related Financial Disclosures the impact of climate change, mainly within the area of forest (TCFD) is an initiative where companies, to increase trans- operations. To provide access to renewable energy both parency, can voluntarily choose to report on how the risks internally and externally, SCA is working with energy effi- and opportunities of climate change may impact the com- ciency measures, using its own biofuels and selling any sur- pany and its profitability. SCA is currently not a member of plus in the form of electricity, pellets, biofuels and district TCFD, but has been working with these issues for some time heating. Moreover, large-scale wind power production is and this work is presented below using the TCFD structure to being built on the company’s forest land together with busi- make it easier to find relevant information. ness partners. The company also works with the develop- ment of biofuel. Read more on pages 18–23, 45 and 49. Governance Climate-related risks and opportunities are included in the Risk management
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 company’s total risk management and business develop- Climate risks are part of the company’s aggregated risk anal- ment work. The Board of Directors approves all policies, ysis, which is conducted every year and is regularly updated including the sustainability policy and risk management and when necessary. Climate-related risks have primarily been internal control policy. Sustainability issues and risks are dis- identified in forest operations resulting from extreme weather cussed at least at one Board meeting every year. The Execu- conditions, drought and in access to fresh water. Political tive Management approves Group targets, which include decisions linked to climate risks could also impact the com- climate-related targets, and review and update the risk pany. Read more in the risk section on pages 66–69. scenario for the company every year. Moreover, risks and opportunities are managed on a continuous basis in the line Metrics and targets organization and in cross-functional networks. Every year, SCA’s Group targets include a number of targets related to the company conducts a climate summary to assess fossil climate impact. SCA’s climate benefit is to increase from 10 to emissions in the value chain. The company also calculates 15 million tonnes of CO2 between 2019 and 2030 and during its contribution to climate benefits on an annual basis using the same period fossil emissions in the value chain are to be the model presented on sca.com. Read more about Corpo- halved. The company is to implement energy efficiency mea- rate Governance on pages 71–81 and 141. sures totaling at least 50 GWh per year until 2025 based on energy consumption in 2020. Wind power installed on SCA’s Strategy land is to increase to 11 TWh by 2025. Work to continue to SCA has identified a number of climate-related risks and improve resource efficiency by raising wood yield and by pro- opportunities. These have been integrated into SCA’s sus- cessing waste streams. This is done through local targets at tainability platform and climate change is also a central com- the company’s units and is part of the Zero waste target. ponent of SCA’s business strategy. SCA has through its major forest assets and renewable products a strong potential to SCA also reports GHG emissions in accordance with Scope play a significant role in the transition to reduce fossil depen- 1-2-3. Other key figures related to energy and resource use dence. This offers SCA new business opportunities that can that concern climate change are also reported. Read more be developed and in parallel the company is striving to reduce on pages 138–139, 148–149, 153–155 and 160–161.
150 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Valuable forests
Valuable forests
Responsible forest management cation (PEFC), which aim to ensure responsible forest manage- ment. SCA contributes together with other social, environmental The forest forms the foundation for SCA’s operations. All wood and economic stakeholders, in developing FSC’s and PEFC’s raw material used in SCA’s products must originate from respon- standards and operations. sibly managed forests. The Group conducts responsible, long- term and profitable forest operations that generate a valuable Responsible raw material sourcing raw material and contribute toward many other values. At the same time, the forest’s conservation and recreational values SCA works proactively with responsible forest management, must be maintained. SCA forest land shall, in the future, be at partly through the management of its forest, and partly through least as rich in biodiversity, nature experiences and raw material the purchase of wood raw material from other forest owners. All SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA as it is today. Through our sourcing of wood raw material, SCA wood raw material bought by SCA is covered by CoC certifica- works systematically to ensure good working conditions and tion and must at least fulfill the requirements of FSC’s Controlled appropriate biodiversity conservation measures, even outside Wood Standard, FSC CW. This means the timber must not be our own forests. from controversial sources, which includes illegally felled forests, forests with high retention values where these values are threat- Forest processes are long. It takes almost a century for a planted ened by forest operations or forests where the rights of indige- tree to become mature enough for harvesting and many pro- nous people or human rights are being violated. SCA’s wood cesses in nature take even longer. SCA’s forest management procurement is third-party certified according to PEFC and FSC planning extends across more than 100 years. Each harvested Chain of Custody. SCA works actively to continuously increase tree is replaced by at least two new trees. During 2020, SCA’s the percentage of wood raw material from certified forests and nurseries delivered about 103 million seedlings, of which some encourages its external suppliers to certify their forest opera- 46 million were planted in SCA’s own forests. SCA also offers tions. SCA also encourages land owners to consider on-site planting after harvesting on the land of private forest owners and retention when harvesting that corresponds to FSC’s require- has introduced a regeneration guarantee whereby SCA takes full ments (SCA retention). In 2020, 63% (52) of wood raw material responsibility for the regrowth of the forest and conducts a consumed was from FSC or PEFC certified forest operations and regeneration control, at the latest, two years after the planting. 18% (15) was harvested by SCA on the land of private forest This responsible and active forest management has resulted in owners, with SCA retention. The remaining volume fulfills FSC SCA having well-managed forests, which contribute biodiversity CW. The increase in certified volume is mainly a result of a and nature experiences, where increasing volumes of renewable increased proportion from SCA’s own forest. raw materials are being harvested at the same time as standing volume is growing. Read more about how SCA conducts respon- Collaboration with reindeer husbandry sible forestry at sca.com. Some 50 Sami communities have customary right to herd reindeer Certified forest management on SCA’s land. Consultations are held to facilitate cooperation and understanding of each other's needs, and cover issues such as SCA’s forests are certified in accordance with the international the time for harvesting, site preparation, fertilization and choice of forest management certificate, Forest Stewardship Council tree species when planting new forest. One important question for (FSC) and the Programme for the Endorsement of Forest Certifi- Sami communities is planting contorta pine. The contorta pine has
Responsible fiber sourcing accordance with FSC CW, of which half is from felling where the pro portion of forest set aside for nature conservation corresponds to FSC requirements (SCA retention). SCA encourages its external suppliers to Certified forest management 63% certify their forest management to increase access to certified raw materials. Chain of custody certified 18% with SCA retention SCA’s production facilities used 11.3 million (11.2) cubic meters of wood Chain of custody certified 19% raw material in 2020. Almost all wood raw material is sourced from northern Sweden.
Country of origin, percentage of consumed 2020 2019 SCA’s timber unit is responsible for sourcing wood raw material for the Sweden 96% 91% production of wood, pulp and paper products. The raw material sourcing is third-party certified according to PEFC and FSC Chain of Baltic states 1% 5% Custody. The largest amount of raw material is derived from certified Finland, Norway, Denmark 2% 2% forest operations. All raw material from the company’s own forests is Poland, Scotland, Spain 1% 2% included in this share. The remaining volumes are CoC-certified in
151 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Valuable forests
a high growth rate and forms dense forest that can cause prob- on the Red List, of which 685 are adversely impacted by forest lems for reindeer herding. All planting by SCA in reindeer herding operations. Of these species, 203 have a significant presence in areas are preceded by consultations with affected Sami commu- SCA’s landholding and are therefore designated as “SCA’s spe- nities. Approximately 15% of the company’s forest is made up of cies commitment”. The focus for work moving forward is to contorta pine and measures required in existing stands to facili- ensure that the habitats used by these species are available in the tate reindeer herding are also handled through consultations. company’s forests.
In 2020, 120 (79) consultation meetings took place with 25 (34) During the year, SCA has identified habitats that are critical for Sami communities, with discussions concerning approximately each of the 203 species. A total of 400,000 hectares of the various 4,500 (7,500) forest compartments. The coronavirus pandemic habitats were acknowledged in SCA’s ecological landscape plans, severely restricted opportunities for consultation. The cancella- set-asides and non-productive land. In addition, 10% was identi- tion of consultation meetings meant decisions on forestry mea- fied and retained as such habitats in planned felling sites in 2020. sures were postponed. During the year, a new consultation pro- cess was developed, together with representatives from Sami Further work is needed to clarify measures needed with regard communities, within the framework of FSC’s Swedish forest man- to the different habitats. This serves as a basis for further work agement standards. It includes an extended planning horizon and with instructions, follow-up and the need for additional research several measures are taken into consideration that enable coexis- and knowledge building. For more information about SCA’s work tence between forest operations and reindeer herding in the with biodiversity, see sca.com. forest landscape. The consultation process is based on the Free Prior and Informed Consent (FPIC) of indigenous peoples. Habitats to protect biodiversity In ecological landscape In felling Biodiversity plans1) plans2) The preservation of biodiversity in the Group’s forests is the most Critical habitats for SCA’s protected species Hectares % of area important environmental target in the management of SCA’s for- 1 Coniferous natural forest with tree continuity 53,200 0.7 ests. Areas that provide vital habitats for sensitive flora and fauna 2 Coniferous natural forest with dead wood 42,700 0.7 are excluded from forest management through voluntary set-asides continuity or harvested using alternative forms of forest management that pro- 3 Open sand pine forests with tree continuity 2,300 mote biodiversity. SCA retains key biodiversity structures in all 4 Coniferous forest and leafy coniferous forest 700 0.0 forest operations, also when managing forest areas that do not con- with tree continuity and nutrient-rich soil tain any particular conservation values. Forest is therefore set aside 5 Light pine forests with dead wood continuity 42,900 from harvesting in our ecological landscape plans, which SCA has 5b Wooded non-productive land 126,000 developed for its entire holding. The ecological landscape plans 6 Hardwood forests containing dead wood 22,400 0.2 have for many years included dialogue with the county administra- 7 Fire sites 1,900 tive boards and the Swedish Environmental Protection Agency on 8 Marshy, brook and riparian forest 53,400 8.0 the protection of forests. 8b Wooded non-productive land 53,900 In 2020, SCA introduced a new working approach to increase the 9 Living/dead trees in sunny environments 0.8 precision of its biodiversity conservation measures. Work is 10 Location and species-specific conservation 1,700 based on the Swedish Red List of species and their status pub- values lished by the Swedish Species Information Centre in 2020. Of Total 401,100 10.53) approximately 50,000 known species in Sweden, about 17,000 1) Identified habitats – area reserved or under nature retention management. 2) can be found in northern Sweden, where SCA’s landholding is Percentage of area identified and saved as habitats in detailed planning of felling sites. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 located, of which 7,400 live in forests. 982 of these are included 3) Of SCAs productive forestland, which corresponds to 8% of SCAs forestland.
Nature conservation area, status Dec 31, 2020 Measures to promote biodiversity
Number of % of productive Number of % of final felling Nature conservation area in the form of hectares forest land Measures taken in 2020 hectares area 2020 Voluntary set-asides for promoting Biodiversity conservation measures in biodiversity1) 173,456 8.3 (8.3) voluntatry set-asides 567 2.5 (1.5) On-site retention in harvesting operations2) - 14.2 (12.7) Alternative (continuous cover methods) forms Total (over the rotation period of the forest) 22.5 (21.0) of harvesting outside voluntary set-asides 533 2.3 (2.2) Prescripbed burning for biodiversity In addition: conservation 121 0.5 (0.5) Alternative forms of forest management 60,834 2.9 (2.9) 1) Shows the percentage of SCA’s productive forest land that was included The table shows forest management measures conducted in 2020 that in ecological landscape plans at the end of 2020 for the purpose of pro- have benefited biodiversity in relation to the harvested area within SCA’s moting biodiversity. The voluntary set-asides are presented at https:// forest holding the same year. Various measures are implemented to www.sca.com/sv/om-oss/var-skog/hitta-parlorna-i-vara-skogar/. recreate habitats and valuable substrates, with prescribed burning as one 2) Shows the proportion of on-site retention in harvesting operations and example. Burning takes place at both clearcut areas that are then regener- pertains to an area of > 0.1 hectares of land within planned final felling ated and in forests set aside for nature conservation purposes. A conser- operations on productive forest land. vation value assessment on site is carried out before all final felling and a complementary inventory is performed by personnel with specialist Seen over a rotation period and the entire productive forest area, this means expertise in forests that may contain high conservation values. 22.5% of the forest is left untouched for nature conservation purposes. Alternative forms of harvesting are primarily various continuous cover forestry methods, such as single-tree selection, selective cutting and shelterwood.
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Efficient use of resources
Efficient use of resources
We use the entire tree Calculations show that SCA’s products already today have a SCA is to conduct its operations in a manner that has the least small carbon footprint. The greatest climate effect is achieved impact on people, the environment and property, and to elimi- by using the Group’s products to replace other products with nate wastage, Zero waste. a larger carbon footprint.
SCA strives to make use of the entire tree and all parts of our Product safety waste streams. The most valuable part of the tree is processed SCA wants to ensure safe and high-quality products and ser- in the sawmills into wood products. Some of these become vices for its customers and consumers, produced and delivered window components, painted cladding or shelves. More than with respect for people and nature. Products must be safe for half of the log is used for wood products. The remainder be- the user and for the environment and meet the customers’ and SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA comes chips for pulp production or sawdust that is processed authorities’ product safety requirements. In product and process into pellets. The bark is used in energy production. development, the precautionary approach is used.
In addition to finished goods, SCA’s mills generates by-products, Raw materials and chemicals used in the products or in the com- such as bark, and waste streams that contain, for example, lignin pany’s operations are continuously assessed and SCA’s Supplier or metals in wood raw materials. Most waste streams, such as Standard places high demands on the product safety of input ash, green liquor sludge and lime sludge is today used for soil goods. Based on available knowledge, we work actively to iden- stabilization or is handled as waste, while by-products are largely tify and replace any products that must be substituted. The work used in energy production. SCA’s target is to increase the added is coordinated through the Group’s Chemicals Management Net- value and reduce handling costs for these streams by finding work. new uses. SCA is continuously striving to optimize its resource efficiency and energy performance by developing its processes, Raw materials products and practices. The foundation for SCA’s products is fresh wood fiber. In addi- tion, smaller quantities of recovered fiber and inorganic material All units in the Group are to continuously work to minimize waste are used in the form of kaolin clay and calcium carbonate in the by using efficient processes, more recycling and by investigating manufacture of various paper products. Moreover, a small new uses for their waste streams. SCA’s units will also actively amount of fossil organic material is used in chemical additives. monitor their energy usage, set targets for improving their energy 52% (48) of wood raw material used is sourced from SCA’s own efficiency and take steps to realize the targets. forest and own sawmills.
Product development and innovation Recovered fiber The company conducts structured innovation work in compli- SCA is actively working to recover fiber. Kraftliner is a fresh fiber- ance with the strategic priorities. One important priority is to based paper product mainly used in the outer, smooth layers of constantly increase value creation of the forest raw material, corrugated board boxes. Kraftliner is used in very demanding partly through greater utilization of raw materials and production packaging, for example packaging for long transport distances, efficiency and partly by moving the product portfolio to increase heavy goods, humid conditions or with special requirements for added value. Innovation work leads to greater customer value purity. In addition to fresh fiber, small amounts of carefully through the development of new products and application areas selected recovered fiber is used in manufacturing certain grades. that improve climate benefit and resource efficiency through Fresh fiber is renewable and together with recovered fiber form forest-based products. a cirular system that needs a continuous inflow of fresh fiber. The fibers can be recycled 5–7 times which makes an important One example from 2020 is a digital color selector that was contribution to a circular economy. launched in the SmartTimber concept and helps customers sim- ulate and order the desired product. Other examples include the Water development of pulp grades in the premium segment, regenera- SCA endeavors to reduce the use of fresh water and the occur- tion guarantee as a service for private forest owners for more rence of substances in process water that impact the environ- reliable replanting and the digitalization of maintenance to opti- ment and to improve the purification of water that is released mize maintenance intervals and save energy. back to nature. SCA’s plants are located in areas with plentiful supply of water and the supply of water is almost exclusively, Life cycle perspective 99%, from surface water. The remaining water is from municipal One important tool in SCA’s corporate responsibility work is the water systems. SCA monitors consumption, using inspection Resource Management System (RMS). This system monitors and control programs to monitor and improve the quality of resource consumption and environmental impact for production effluent water. Almost 100% of all water used is returned to the facilities, transportation of raw materials and finished products. recipient. The greatest share, 66%, is used as cooling water and Using life cycle assessments, the climate and environmental has no contact with the process. In the production processes, impact of the Group’s products can be calculated and evaluated. water is mainly used to transport fiber and is reused several
153 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Efficient use of resources
times before it is mechanically treated and undergoes biological Transportation treatment. Effluent water from pulp and paper mills is, after treat- Raw materials are transported to SCA’s production plants and ment, discharged into the Baltic Sea. finished products are delivered to SCA’s customers. SCA uses ships, rail and road transportation depending on distance and Energy the transport systems accessibility, in order to achieve the Calculations for energy use at a production facility include pur- lowest climate impact. The choice of fuel is reviewed as renew- chased energy (heating, electricity and fuel), energy generated able fuels become more available. from wood, liquor, bark, sludge and waste paper, and self-pro- duced electricity. A large portion of the energy used by SCA The largest share of transportation is conducted by ship with comes from the incineration of wood residuals and from elec- SCA-owned RoRo vessels, chartered container ships or other tricity produced through co-generation. Fuel consumption at cargo ships. SCA uses external suppliers for most of its road SCA is 95% (95) fossil-free. transports. Great emphasis is placed on maximizing load utiliza- tion in trucks and ships, to minimize energy use and transport Any self-produced electricity that is not used internally is sup- emissions. Heavy vehicles, known as 74-tonne vehicles, con- plied to the national grid. SCA also delivers energy to the district tribute to more efficient transportation with lower emissions. heating system by utilizing secondary heat from the process and 74-tonne vehicles are used for timber transportation if possible. in this way replaces fossil fuels at municipal heating plants. However, the transition is restricted by the bearing capacity of certain road bridges. Since 2003, SCA’s ESAVE energy-efficiency program has con- tributed to energy savings and improved efficiency. The target for A large portion of air emissions are generated by transportation. the current 2020–2025 program period is to implement energy- SCA works to reduce emissions by increasing the fill ratio, saving measures of at least 50 GWh per year based on current training in ecodriving, applying various techniques to reduce fuel energy consumption. ESAVE comprises investing in energy-effi- consumption, and prioritizing transport means with less environ- cient technical solutions, focusing on continuous improvements mental impact. and increasing awareness among employees. Within the scope of ESAVE, energy surveys are conducted that are used to set tar- Transportation by rail is a carbon-efficient mode of transporta- gets and prioritize measures. All new equipment should be tion, which is prioritized where this is possible. The proportion energy efficient by design. In 2020, SCA had seven units subject of timber transportation by rail has increased in recent years. to the EU Emissions Trading System (EU ETS). However, access to a reliable railway network limits options. For finished goods, block trains are used to transport kraftliner SCA almost only buys and sells thermal energy as heat. In 2020, between Piteå and Umeå and onward to the central warehouse 1,183 TJ (1,675) was sold externally and 450 TJ (473) was pur- in Skövde. The northbound block trains transport recovered chased. 78 TJ (182) of energy sold was steam. No cooling was fiber, which is used as raw material in production. This approach purchased or sold. means the block trains are fully loaded in both directions.
Distribution of fuel supply Distribution of electricity supply SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Biofuel 95% Co-generation 31% Fossil fuel 4.5% Grid supply 69% Electric boiler 0.5%
In 2020, SCA’s fuel consumption, including purchased electricity for SCA’s plants in Sweden generate electricity using co-generation. The steam production, was 95% fossil-free. Electricity purchased from the remainder is purchased from the national grid. The expanded Östrand Swedish national grid is considered 97% fossil-free (according to IEA). pulp mill generated a surplus of electricity that is sold externally. SCA Refers to Swedish production facilities. is currently a net purchaser of electricity.
Distribution of transport work Distribution of water supply
Ship 83% Surface water 99% Road 12% Water from municipal 1% water systems Rail 5% Ground water 0%
Sales to other continents have fallen slightly, which has led to a minor Almost all of SCA’s water is from surface water sources, such as large decrease in the proportion of ship transports. For land transportation, rivers. Almost all water used is returned to the recipient. approximately one third is conducted by rail.
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Efficient use of resources
Emissions to air and water Waste and waste streams The company’s total emissions are influenced by the level of pro- Minimizing waste is one of the interim targets of the Group target duction, product mix and uniform production. SCA’s production Zero waste 2030. SCA takes a life cycle approach and works facilities possess environmental permits, which regulate emis- proactively with resource efficiency. SCA’s industrial ecosystem sions. Air emissions comprise all combustion units at SCA’s pro- utilizes by-products and waste streams insofar as this is pos- duction sites, regardless of fuel, as well as emissions from pur- sible. Solid waste is mainly recycled through use as raw material chased electricity and thermal energy. When energy is supplied in other processes, construction materials or for energy recovery to an external facility, air emissions are reduced in relation to the and is primarily bio ash, sludge, organic waste and plastic. SCA energy amount delivered. Emissions to air are reported as dust, participates in or supports several projects to develop more NOX, SO2 and fossil CO2. value-creating uses for the company’s waste streams.
SCA’s effluent water is divided into cooling water and process Only a small quantity of material used, approximately 0.2% of water. Cooling water, which constitutes 66% of water usage, has the produced product, that cannot currently be reused, is sent only been heated and has not been in contact with the process to landfill or is hazardous waste. Hazardous waste is primarily flow. Effluent water is mechanically treated to remove suspended waste oil. It also includes organic solvents, batteries and strip solids, sand and particles, and the subsequent biological treat- lights. Materials that are currently sent to landfill include “lime ment which also reduces dissolved solids and pollutants that gravel”. SCA is striving to minimize these fractions. affect chemical oxygen demand (COD). Emissions to water are reported as COD, suspended solids, AOX, nitrogen and phos- phorous. 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Emissions to air from industry, Emissions to air from industry, Emissions from transport NOX SO2 activities, NOX and SO2
tonnes tonnes tonnes 2,000 600 8,000 7,000 500 1,500 6,000 400 5,000 1,000 300 4,000 3,000 200 500 2,000 100 1,000 0 0 0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
NOX SO2
Emissions of nitrogen oxides from SCA’s Emissions of SO2 from SCA’s industries rose in SO2 emissions are reduced due to the new industries rose in 2020 due to an increase in oil 2020 due to an increase in oil consumption global regulations from 2020 that mean sulfur consumption and higher pulp production. and higher pulp production. levels in marine fuels must not exceed 0.5%. Prior to this, a limit was only in force in the Baltic Sea and North Sea of 0.1%.
Water effluents from industry, Water effluents from industry, Hazardous waste and waste phosphorous and nitrogen COD and suspended solids to landfill
tonnes ktonnes ktonnes 500 20 10
400 8 15 300 6 10 200 4 5 100 2
0 0 0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Phosphorous Nitrogen COD Suspended solids Landfill Hazardous waste
Emissions of phosphorous and nitrogen rose In 2020, COD decreased compared with 2019. Of the total volume of material handled by in 2020 due to operational problems with the Emissions of suspended solids rose in 2020 SCA, only a small quantity becomes waste. wastewater treatment facility at Obbola paper due to operational problems with the waste- Almost all waste is recycled (94%). A small mill. Work to tune the Group’s wastewater water treatment facility at Obbola paper mill. quantity, (4%), is sent to landfill or treated as treatment facilities continous. hazardous waste (2%).
155 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Responsibility for people and the community
Responsibility for people and the community
SCA aims to be a safe and inclusive employer where employees prevent similar incidents in the future. Lessons learned from achieve their full potential in a work environment with respect for events that have occurred will be shared with the other units each other, the community and for nature. SCA is a responsible within the Group. Every employee has the right to stop work if company that participates in the progress of society and cares the situation is perceived as unsafe. Each unit has a clear safety about people and the community. organization, local targets and action plans.
Healthy and safe work environment SCA conducts training initiatives with regard to health and SCA’s most important goal is that all employees, and everyone who safety. More than 60 managers, safety officers and others who enters the company’s sites, should return home healthy and are active in improving the work environment received training to unharmed after work. The Group’s aim is zero workplace accidents. create a better work environment (BAM) and more than 500 SCA’s Health and Safety Policy describes the Group’s health and employees were trained in behavior-based safety (BBS), a safety culture. Health and safety work at SCA’s larger units is certi- methodical and simple approach to alert each other to work fied in accordance with ISO 45001 (previously OHSAS 18001). safely. There are also local initiatives that promote healthy living and a safe work environment. SCA has gathered the work to achieve the zero vision under the name ZERO. This work was initiated by and reported directly to All SCA employees have access to occupational health services the President and CEO. The ZERO program is developing a shared that provide work-related health services and proactive work in health and safety culture, training leaders, engaging in dialogue health and well-being. The occupational health service provider on safe and unsafe behavior and encouraging all employees to works on a strictly confidential basis and also conducts random become involved and active. ZERO also includes shared proce- drug tests. dures and a uniform structure for systematic follow-up, evaluation and reporting. “Safety performance reviews” were carried out at In 2020, 36 (49) workplace accidents took place resulting in two large facilities together with external experts and have been absence, which is a reduction of approximately 25% compared used as a basis for priorities in work moving forward. The target of with last year. The most common causes of accidents were slips, zero workplace accidents has been supplemented with achieving a trips and falls. The next two groups of most common causes of mature (interdependent) health and safety culture corresponding to accidents were injuries caused by a crushing and hit by moving, the definition used in the Bradley Curve™ developed by DuPont. flying or falling object.
SCA is proactive in identifying and addressing shortcomings The number of days of absence due to workplace accidents has and risks, reporting and analyzing events that have occurred to decreased to 8 days (11) per accident in 2020 and a total of 310
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 identify the underlying causes and implementing measures to (567) days for the year. A small number of accidents accounts for
Cause of accidents Workplace accident Risk and BBS observations frequency rate Slips, Trips and 39% FR Number Falls 12 20,000
Hit by moving, 14% 10 flying or falling 15,000 object 8 Crushing injury 14% 6 10,000 Struck by/against 11% object 4 5,000 Fall from height 6% 2 Sprains/strains 6% 0 0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Other 10% BBS observations Risk observations
Tripping and slipping are the most common The accident frequency rate (FR), measured as One positive trend in the health and safety cul- causes of accidents and accounted for almost the number of workplace accidents resulting ture is that more and more employees are taking 40% of accidents resulting in absence in 2020. in absence per million hours worked, has part in preventive efforts, such as reporting improved by 25% compared with 2019. The observations. The number of observations has positive trend is a clear sign that the ZERO increased significantly, by about 4,000 observa- initiative is having the desired effect. tions, to more than 18,000, equivalent to almost 5 observations per employee.
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Responsibility for people and the community
a large share of absence. In 2020, tripping accidents resulted in Employee relations the longest absence. As part of preventive efforts, 18,079 Employees have representatives on the Board and in various (13,964) risk and BBS observations were reported. networking groups to work together with the company to improve and develop operations. In the event of major changes, Covid-19 an impact assessment is performed. 2020 was in many ways an exceptional year due to the corona- virus pandemic, which has affected us all. Health and safety have All Employee Surveys, where employees can take part, are held always been a top priority at SCA and the company was therefore regularly. Action plans are drawn up based on the results of quick to introduce restrictions and measures to avoid the spread these surveys to develop SCA. The survey was completely digital of the virus at workplaces, protect risk groups and safeguard in 2020 with a response rate of more than 80%. Employees also operations. The company made adjustments to critical functions, took part from segments of the Group that are being discon- divided working groups and implemented action plans for remote tinued. The results indicated good commitment, a focus on working. In production, the company has adapted workplaces health and safety and goals, as well as positive progress for and procedures to minimize the risk of infection. leadership and team work.
Of course, SCA has also had employees who tested positive for All employees in Sweden, with the exception of the Executive Covid-19, but total sickness absence during the year was at a Management Team, are covered by collective agreements. The normal level. Production and customer deliveries were main- percentage for the Group as a whole is 92%. Working hours are tained in a satisfactory manner. SCA also performed three major regulated in laws and agreements and through internal guide- maintenance stops without increasing infections at our work- lines for availability. 2020 REPORT SUSTAINABILITY AND ANNUAL SCA places or in local communities. Diversity and inclusive culture Due to the uncertainty surrounding the impact of coronavirus on SCA stands up for the equal value of every person and respect for the global economy and on SCA’s operations, SCA decided not each other. It fosters cooperation and allows us to develop, as to pay a dividend to shareholders for 2019. The pandemic also people and as a company. The principles for the company’s work impacted other areas of SCA’s products and raw materials. in the field are detailed in SCA’s HR Policy and procedures for vic- Demand for hygiene articles, such as toilet paper, increased timization. The equal opportunity plans, which include practical sharply at the start of the pandemic, but then decreased by a activities at unit level, are prepared and followed up on an annual similar amount, and during the year has returned to normal basis. The company also developed a discussion tool to facilitate levels. Demand for construction materials rose sharply during and encourage dialogue on topics and situations that can occur in the year. This was the case in the Nordic region, but also many day-to-day activities. By spotlighting and talking about dilemmas, other locations around the world. SCA’s employees can work to create an even better workplace.
Employee age distribution for the Group Active work for inclusion and attractiveness as an employer. Examples include: % 35 • A living Code of Conduct through training and discussion tool for dia- 30 logues about values. 25 • Introductory training for all new employees for a shared set of values and inclusion. 20 • Greater gender balance among summer workers. Wood, Forest and 15 Blue collar Sourcing & Logistics all reached a level of more than 44% women. 10 White collar • Scholarships at Mid Sweden University, participation in labor market 5 fairs as well as higher visibility in social media. Total • Summer temporary job whereby a university student tested working 0 < 30 31–40 41–50 51–60 > 60 years as manager for SCA Underhåll (Maintenance) for eight weeks. The age structure has not changed to any great extent compared with • Early career program, trainee program, two-thirds of participants are 2019. Refers to permanent staff at the end of the year. women. • A large number of work placements, though a smaller number in 2020 due to the coronavirus pandemic.
Distribution women and men in total Distribution women and men for the Group in management positions for the Group
Women 21% Women 23% Men 79% Men 77%
The share of women in total in the Group amounts to 21%, The share of women in management positions, members of management which is a small increase compared with 2019. teams, amounts to 23% (compared with 19% in 2019 and 21% in 2018).
157 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Responsibility for people and the community
To increase diversity, the company is also working to broaden its SCA engages in continuous dialogue with various stakeholders recruitment base by changing the style of its recruitment ads, about how the Group can contribute to the positive development a Group-wide recruitment function and through interaction with of society. This includes meetings and dialogue with municipal high schools, higher education and universities. For example, representatives, local residents, reindeer herding Sami and SCA Forest is taking part in the “Projekt jämställdhet i skogs- people who live close to SCA’s facilities. The Group sponsors branschen 2020–2022”, a gender equality project in the forest local associations, hold regular talks with recruitment agencies industry, together with Holmen Skog, Norra skogsägarna, LRF, and employment offices and collaborates in various ways with the county administrative board and the Swedish Forest Agency. universities and colleges in Northern Sweden. One goal has also been to achieve greater gender balance among summer workers. SCA contributes to the local economy in the municipalities in Northern Sweden where the company conducts operations. Of Competence supply and development SCA’s more than 4,100 employees in 2020, 93% were employees The need for training is identified based on the needs of the unit in Sweden and the remaining 7% mainly in Europe. The per- and the individual to meet future challenges in the best way pos- centage employed outside of Sweden will decrease following the sible. SCA offers continuing training according to the 70-20-10 divestment of the UK operations in the Wood business area in model, meaning respectively practical training in the work situa- December 2020. In addition to direct payments, in the form of tion, coaching and formal education. The training courses are various taxes, SCA generates the preconditions so that trade, conducted, for example, in leadership, work environment, busi- services and public services can continue to exist in smaller rural ness ethics and in specific competencies. SCA also takes part communities. SCA’s industries, where one very important ele- in the development of training courses in professions with a ment of the supply of raw material is the purchase of timber from shortage of labor, such as machine operators. Furthermore, private forest owners, create jobs in rural areas, both directly and SCA offers practical workplace experience and summer jobs in indirectly. SCA’s forests, not least the forest roads SCA builds, offices, industrial plants, nurseries and in forest operations. This contribute toward ecotourism, hunting and fishing. In combina- provides a good and important base for SCA’s supply of skilled tion, these operations create an opportunity for people to live employees, at the same time as young people are offered and work in areas such as the inland region of Norrland. important work experience. In 2020, 386 young people had summer jobs at SCA. The proximity between SCA’s research and development unit and Mid Sweden University in Sundsvall contributes toward sev- SCA collaborates with schools in order to secure the industry’s eral interesting research and innovation projects in the region attractiveness and the long-term supply of competent employees. and attracts research competence. SCA has collaborated with SCA participates in the “Skogen i Skolan” program, which aims IBM, RISE Processum and BizMaker in the Forest Business to increase knowledge and awareness of the forest and forest Accelerator for the development of startups with forest-related industry among students and teachers, “Tekniksprånget,” a business concepts. Since starting in 2017, 24 startups have nationwide placement program for senior high school students taken part in the accelerator program. who studied natural sciences and technology programs to increase interest in pursuing the engineering profession, and “Jobbsprånget” to help newly arrived academics to enter the labor market.
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Employeeship and leadership SCA’s community engagement SCA strives to offer every employee an opportunity to develop to their full potential and to work in an atmosphere of respect and During 2020, the coronavirus pandemic has impacted trust. All employees are given annual appraisal reviews to follow many of the activities that the company normally partici- up performance and job satisfaction, define areas for improve- pates in or organizes. ment and personal targets. All new employees are given intro- ductory training and have a personalized introductory plan. Examples from 2020 • University partnerships to use AI technology for safer All managers take part in a one-day introduction to SCA’s leader- maintenance aimed at reducing the risk of accidents. ship platform that also encompasses SCA’s strategy and the company’s expectations for its leaders. Moreover, a number of • Kalla Champs was held, but adapted. The aim was to programs will be conducted in change management and shorter encourage young people to move around and improve courses in rehabilitation and work adaptability, recruitment, their health through outdoor activities in the forest. target and performance reviews and basic labor law. In 2020, • The transformation of a former landfill area into a bird a total of 99 managers took part in these activities. area at the mouth of the Ume River to promote bio diversity, carried out together with partners. Community engagement • Collaboration with the Swedish Forest Agency to In accordance with SCA’s guidelines for community engage- assess continuous cover forestry on trial sites at one of ment, the company prioritizes initiatives with a clear link to SCA’s the company’s retention parks. values, strategic priorities, expertise, operations and geographic presence. SCA’s community engagement shall be politically and • Supporting associations and local community engage- religiously neutral. To remain relevant, today and in the future, ment in sport, culture and other areas. SCA must evolve in harmony with the communities of which the • Planting training for unemployed people. Some 40 company is a part. Social challenges can serve as a source of people took part in a one-week training course and innovation and development for SCA’s business models and could then apply for work as a forest planter. product offerings.
158 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Social data
Social data for the SCA Group
The table shows aggregated data at Group level for operations that were part of the Group during that year. Data for the con- struction material operations in the UK in the Wood business area are included for the part of 2020 when SCA owned the operations, see the About the Sustainability Report section for more information.
2020 2019 2018 Average number of employees 4,196 4,253 4,216
Number of employees1) 3,829 4,118 4,121 of whom men 3,017 3,324 3,358 of whom women 812 794 763 Number of temporary employees1) 422 433 410 of whom men 281 307 306 of whom women 141 126 104 Number of part-time employees1) 77 89 93 of whom men 49 52 57
of whom women 28 37 36 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Age distribution < 21 years old 0% 0% 0% 21 – 30 15% 15% 14% 31 – 40 18% 18% 19% 41 – 50 24% 25% 26% 51 – 60 33% 33% 32% 61+ 10% 9% 9%
Employee turnover2) 14% 6% 8% of which retirement and restructuring3) 10% 2% 2% of which other 4% 4% 6%
Gender equality Share of women on the Board of Directors (excluding appointed by employees) 33% 40% 40% Share of women on the Board of Directors (including appointed by employees) 36% 38% 38% Share of women in the Executive Management Team 25% 17% 17% Share of women, in management positions4) 23% 19% 21% Share of women, all employees 21% 19% 19% Share of women, white collar 34% 32% 32% Share of women, blue collar 12% 10% 10%
Health and Safety Absence due to illness total 3.9% 3.1% 3.5% Number of workplace accidents resulting in absence, LTA (of which non-Swedish units) 36 (5) 49 (5) 60 (10) Number of workplace accidents among contractors, CLTA5) (of which fatal accidents) 24 (0) 17 (0) 33 (2) Number of working days lost due to workplace accidents, DLA6) 310 567 1,044 Workplace Accident Severity Rate, ASR, measured as days of absence/LTA 8.6 12.0 17.4 Workplace accident Frequency Rate, FR, (LTA/1,000,000 WH) 5.6 7.4 9.1 Fatal accidents 0 0 0 Total Recordable Incidents, TRI7) 124 164 171 Number of hours worked, million hours 6.48 6.59 6.60
1) Refers to employees on December 31. 2) Refers to permanent staff. 3) For 2020, 7 percentage points pertains to the divestment of construction material operations in the UK. 4) Refers to members of management teams. 5) Refers to contractors who perform work at SCA’s facilities, in forestry operations or conduct transport activities. 6) Absence from day 1 after the accident. 7) Includes all accidents resulting in absence (LTA), alternative work duties (RWC) and medically treated accidents (MT). Outcome for 2018 is not verified based on the definition.
159 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Environmental data
Environmental data
The table shows environmental data for SCA’s production facilities, where SCA’s holding is at least 50%. The report is more extensive than what is covered in text and charts. Divested operations includes operations that SCA no longer owns. The construction material operations in the UK are included in divested operations for 2019 and 2020.
Total Building Building Total Pulp and Total Wood and Ortviken Östrand Munksund Obbola BioNorr materials materials Bollsta Gällö Munksund Rundvik Tunadal Divested SCA paper mills Energy paper mill pulp mill paper mill paper mill Härnösand Stugun Tunadal sawmill sawmill sawmill sawmill sawmill operations 2020 2019 2018 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 PRODUCTION Paper, pulp and pellets ktonnes 2,434 2,460 2,178 2,245 2,273 189 187 581 696 839 761 385 369 441 447 166 167 23 20 Timber and solid-wood products 1,000m3 2,285 2,386 2,370 2,285 2,386 92 97 90 85 534 549 335 341 326 376 267 291 510 521 132 124
ENERGY Electricity Co-generation GWh 852 1,006 731 852 1,006 0 0 45 65 6002) 6112) 114 178 92 152 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Grid supply GWh 1,915 2,078 2,225 1,737 1,893 178 185 1,2651) 1,5521) 9 8 223 152 240 181 30 31 6 6 4 3 40 40 17 17 23 26 18 20 35 36 4 6 TOTAL GWh 2,767 3,083 2,956 2,589 2,898 178 185 1,310 1,616 609 619 337 330 333 333 30 31 6 6 4 3 40 40 17 17 23 26 18 20 35 36 4 6 Fuels Biofuel TJ 32,679 31,879 27,059 30,436 29,416 2,243 2,463 2,250 2,653 17,770 16,3256) 6,044 5,986 4,371 4,452 415 422 6 7 1 2 581 659 289 261 399 441 223 266 327 405 0 0 Fossil fuel TJ 1,562 1,674 2,005 1,344 1,519 218 154 185 290 658 7156) 125 142 376 372 1 2 0 0 0 0 69 49 0 0 13 24 4 4 121 66 9 10 Electric boiler TJ 219 168 177 219 168 0 0 162 99 0 0 56 69 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 TOTAL TJ 34,460 33,721 29,241 31,998 31,103 2,461 2,618 2,598 3,043 18,428 17,0406) 6,226 6,196 4,747 4,824 417 424 6 7 2 2 650 707 289 261 412 465 228 270 448 471 9 10 of which co-generation TJ 7,413 7,431 3,024 7,413 7,431 0 0 201 291 6,380 5,8186) 443 680 389 642 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EMISSIONS To air
NOx as NO2 tonnes 2,106 1,995 1,831 2,010 1,891 97 104 149 165 1,161 1,043 428 400 272 283 0 0 1 1 0 0 48 57 22 19 6 6 14 13 6 7 0 0
SO2 tonnes 360 300 337 345 290 15 10 26 23 165 100 122 134 32 32 0 0 0 0 0 0 2 1 0 0 1 3 0 0 12 6 0 0 Dust tonnes 260 233 221 194 165 66 68 10 18 129 99 30 17 26 31 55 53 0 0 0 0 3 6 0 0 0 0 8 8 0 0 0 0 6) CO2 fossil ktonnes 120 127 153 104 116 16 11 13 21 51 56 9 10 30 29 0 0 0 0 0 0 5 4 0 0 1 2 0 0 9 5 1 1
CO2 fossil, grid electricity ktonnes 27 27 27 24 24 3 4 17 19 0 0 3 2 3 2 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 1 2 6) CO2 biogenic ktonnes 3,464 3,383 2,846 3,239 3,137 226 246 216 271 1,909 1,750 642 639 472 478 40 41 1 1 0 0 56 63 28 25 38 42 32 35 31 39 0 0
To water COD tonnes 20,063 20,730 18,266 20,063 20,730 0 0 3,084 3,723 8,461 9,377 6,975 6,628 1,543 1,002 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 BOD tonnes 3,948 3,916 3,939 3,884 3,847 64 69 79 77 745 899 2,830 2,758 230 114 0 0 0 0 0 0 64 69 0 0 0 0 0 0 0 0 0 0 Suspended solids tonnes 2,628 1,873 1,892 2,627 1,871 1 2 142 119 954 782 876 804 654 167 1 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SCA ANNUAL AND SUSTAINABILITY REPORT 2020 AOX tonnes 24 28 15 24 28 0 0 2 2 19 20 2 3 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Phosphorous (P) tonnes 37 35 34 36 34 1 1 3 2 16 18 6 5 11 8 0 0 0 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 Nitrogen (N) tonnes 325 274 290 322 271 3 3 56 66 167 119 42 44 58 42 0 0 0 0 0 0 3 3 0 0 0 0 0 0 0 0 0 0 Effluent water (process water) Mm3 50 46 40 50 46 0 0 12 12 17 19 16 9 6 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Solid waste3) Landfill tonnes 5,394 4,947 5,946 4,089 3,470 1,305 1,477 12 4 33 21 1,492 2,918 2,552 527 29 1,285 0 0 0 0 1,201 2 12 7 10 12 0 0 50 0 3 171 Recovery tonnes 127,303 143,289 122,271 113,668 130,299 13,635 12,989 20,707 27,042 52,070 62,253 9,044 12,427 31,846 28,577 182 0 140 127 284 94 3,347 2,891 1,318 865 73 83 8,094 8,818 196 112 0 0 Hazardous waste tonnes 2,310 1,878 1,357 1,433 1,360 878 518 204 206 520 391 230 97 479 667 395 171 7 85 4 2 266 78 8 12 15 11 47 57 135 102 0 0
RAW MATERIALS AND SOLD BY-PRODUCTS (GROUP TOTAL) Raw materials 2020 2019 2018 External sold by-products 2020 2019 2018 Wood and sawmill chips ktonnes 4,600 4,600 4,000 Electricity TWh 0.42 0.35 0.02 Purchased pulp ktonnes 0 0 0 District and waste heat TWh 0.33 0.47 0.50 Recovered paper ktonnes 272 292 289 Solid biofuels5) TWh 1.7 1.9 1.5 Inorganic material ktonnes 165 199 198 Tall oil, turpentine ktonnes 50 38 20 Organic fossil material ktonnes 8 10 10 Water4) Mm3 142 145 93
1) The largest share of electricity consumption is used to manufacture TMP pulp and is recycled as steam. 2) Figure refers to electricity consumed from co-generation. Surplus electricity is sold externally and recognized in the table External sold by-products. 3) In 2020, 7,067 tonnes of construction waste was also created by the expansion project in Obbola, of which 70% was recoverable. 4) The rise in water consumption between 2018 and 2019 was due to an increase in pulp production and largely consists of cooling water for steam turbines. 5) Including volumes from operations where SCA has total responsibility for sales. 6) The outcome of 2019 was based on a standard calculation for the turbine’s fuel consumption in the start-up phase. The outcome for 2019 has been updated after the actual efficiency was measured in 2020.
160 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Environmental data
Total Building Building Total Pulp and Total Wood and Ortviken Östrand Munksund Obbola BioNorr materials materials Bollsta Gällö Munksund Rundvik Tunadal Divested SCA paper mills Energy paper mill pulp mill paper mill paper mill Härnösand Stugun Tunadal sawmill sawmill sawmill sawmill sawmill operations 2020 2019 2018 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 PRODUCTION Paper, pulp and pellets ktonnes 2,434 2,460 2,178 2,245 2,273 189 187 581 696 839 761 385 369 441 447 166 167 23 20 Timber and solid-wood products 1,000m3 2,285 2,386 2,370 2,285 2,386 92 97 90 85 534 549 335 341 326 376 267 291 510 521 132 124
ENERGY Electricity Co-generation GWh 852 1,006 731 852 1,006 0 0 45 65 6002) 6112) 114 178 92 152 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Grid supply GWh 1,915 2,078 2,225 1,737 1,893 178 185 1,2651) 1,5521) 9 8 223 152 240 181 30 31 6 6 4 3 40 40 17 17 23 26 18 20 35 36 4 6 TOTAL GWh 2,767 3,083 2,956 2,589 2,898 178 185 1,310 1,616 609 619 337 330 333 333 30 31 6 6 4 3 40 40 17 17 23 26 18 20 35 36 4 6
Fuels 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Biofuel TJ 32,679 31,879 27,059 30,436 29,416 2,243 2,463 2,250 2,653 17,770 16,3256) 6,044 5,986 4,371 4,452 415 422 6 7 1 2 581 659 289 261 399 441 223 266 327 405 0 0 Fossil fuel TJ 1,562 1,674 2,005 1,344 1,519 218 154 185 290 658 7156) 125 142 376 372 1 2 0 0 0 0 69 49 0 0 13 24 4 4 121 66 9 10 Electric boiler TJ 219 168 177 219 168 0 0 162 99 0 0 56 69 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 TOTAL TJ 34,460 33,721 29,241 31,998 31,103 2,461 2,618 2,598 3,043 18,428 17,0406) 6,226 6,196 4,747 4,824 417 424 6 7 2 2 650 707 289 261 412 465 228 270 448 471 9 10 of which co-generation TJ 7,413 7,431 3,024 7,413 7,431 0 0 201 291 6,380 5,8186) 443 680 389 642 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EMISSIONS To air
NOx as NO2 tonnes 2,106 1,995 1,831 2,010 1,891 97 104 149 165 1,161 1,043 428 400 272 283 0 0 1 1 0 0 48 57 22 19 6 6 14 13 6 7 0 0
SO2 tonnes 360 300 337 345 290 15 10 26 23 165 100 122 134 32 32 0 0 0 0 0 0 2 1 0 0 1 3 0 0 12 6 0 0 Dust tonnes 260 233 221 194 165 66 68 10 18 129 99 30 17 26 31 55 53 0 0 0 0 3 6 0 0 0 0 8 8 0 0 0 0 6) CO2 fossil ktonnes 120 127 153 104 116 16 11 13 21 51 56 9 10 30 29 0 0 0 0 0 0 5 4 0 0 1 2 0 0 9 5 1 1
CO2 fossil, grid electricity ktonnes 27 27 27 24 24 3 4 17 19 0 0 3 2 3 2 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 1 2 6) CO2 biogenic ktonnes 3,464 3,383 2,846 3,239 3,137 226 246 216 271 1,909 1,750 642 639 472 478 40 41 1 1 0 0 56 63 28 25 38 42 32 35 31 39 0 0
To water COD tonnes 20,063 20,730 18,266 20,063 20,730 0 0 3,084 3,723 8,461 9,377 6,975 6,628 1,543 1,002 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 BOD tonnes 3,948 3,916 3,939 3,884 3,847 64 69 79 77 745 899 2,830 2,758 230 114 0 0 0 0 0 0 64 69 0 0 0 0 0 0 0 0 0 0 Suspended solids tonnes 2,628 1,873 1,892 2,627 1,871 1 2 142 119 954 782 876 804 654 167 1 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 AOX tonnes 24 28 15 24 28 0 0 2 2 19 20 2 3 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Phosphorous (P) tonnes 37 35 34 36 34 1 1 3 2 16 18 6 5 11 8 0 0 0 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 Nitrogen (N) tonnes 325 274 290 322 271 3 3 56 66 167 119 42 44 58 42 0 0 0 0 0 0 3 3 0 0 0 0 0 0 0 0 0 0 Effluent water (process water) Mm3 50 46 40 50 46 0 0 12 12 17 19 16 9 6 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Solid waste3) Landfill tonnes 5,394 4,947 5,946 4,089 3,470 1,305 1,477 12 4 33 21 1,492 2,918 2,552 527 29 1,285 0 0 0 0 1,201 2 12 7 10 12 0 0 50 0 3 171 Recovery tonnes 127,303 143,289 122,271 113,668 130,299 13,635 12,989 20,707 27,042 52,070 62,253 9,044 12,427 31,846 28,577 182 0 140 127 284 94 3,347 2,891 1,318 865 73 83 8,094 8,818 196 112 0 0 Hazardous waste tonnes 2,310 1,878 1,357 1,433 1,360 878 518 204 206 520 391 230 97 479 667 395 171 7 85 4 2 266 78 8 12 15 11 47 57 135 102 0 0
RAW MATERIALS AND SOLD BY-PRODUCTS (GROUP TOTAL) Raw materials 2020 2019 2018 External sold by-products 2020 2019 2018 Wood and sawmill chips ktonnes 4,600 4,600 4,000 Electricity TWh 0.42 0.35 0.02 Purchased pulp ktonnes 0 0 0 District and waste heat TWh 0.33 0.47 0.50 Recovered paper ktonnes 272 292 289 Solid biofuels5) TWh 1.7 1.9 1.5 Inorganic material ktonnes 165 199 198 Tall oil, turpentine ktonnes 50 38 20 Organic fossil material ktonnes 8 10 10 Water4) Mm3 142 145 93
1) The largest share of electricity consumption is used to manufacture TMP pulp and is recycled as steam. AOX Absorbable organic halogens BOD Biochemical oxygen demand NOX Nitrogen oxides 2) Figure refers to electricity consumed from co-generation. Surplus electricity is sold externally and recognized in the table External sold by-products. CO2 Carbon dioxide NO2 Nitrogen dioxide SO2 Sulfur dioxide 3) In 2020, 7,067 tonnes of construction waste was also created by the expansion project in Obbola, of which 70% was recoverable. COD Chemical oxygen demand 4) The rise in water consumption between 2018 and 2019 was due to an increase in pulp production and largely consists of cooling water for steam turbines. 5) Including volumes from operations where SCA has total responsibility for sales. 6) The outcome of 2019 was based on a standard calculation for the turbine’s fuel consumption in the start-up phase. The outcome for 2019 has been updated after the actual efficiency was measured in 2020.
161 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
About the Sustainability Report
About the Sustainability Report
SCA publishes a sustainability report each year. The latest report Data collection was published in March 2020. Data provided in the Report is compiled through various systems, primarily the Group’s accounting system, Resource Management In June 2017, the hygiene business was distributed in the form of System (RMS), forest planning systems, SCA’s HR system and the listed company Essity. Comparable data from 2016 and pre- Afa’s Occupational health and safety information systems (the IA vious years in this report is from the business unit SCA Forest systems). Since assumptions and conversion factors may be Products in the former SCA. In 2020, operations in the Wood required for certain calculations, this entails a source of uncer- business area were divested in the UK and is included in the tainty. SCA strives to obtain data that is as reliable as possible. report until the ownership change on December 1, 2020. The decision to discontinue publication paper production in Ortviken The RMS system describes how the company uses energy, will impact results in 2021. For other events during the year, refer water, transport and raw materials and generates waste and to the Board of Directors’ Report. emissions. RMS data is used for internal control, monitoring and analysis, life cycle assessments and external benchmarking. Sustainability work is integrated into the Group’s operations and RMS data is reported at unit level using direct measurements the Sustainability Report in accordance with the Annual and inventories. Accounts Act constitutes part of SCA’s Annual Report for 2020. Areas covered by the legislative requirements are clarified in the Energy consumption is calculated in various ways, for example Board of Directors’ Report. The Sustainability Report was sub- through direct measurements of consumption or by calculating mitted to the external auditor together with the Annual Report, based on fuel consumption. The conversion factors used are refer to the auditor’s report. obtained from suppliers or from literature.
SCA’s 2020 Sustainability Report is prepared in accordance with For most CO2 emission calculations, SCA applies the global the Global Reporting Initiative (GRI) Standards, Core option. The standard Greenhouse Gas Protocol to measure, manage and sustainability information in the Annual Report was reviewed by report CO2 emissions. For other environment data, SCA applies external auditors, see the Auditor’s Report. recognized measurement and calculation standards, including the Swedish Standards Institute, the Swedish Environmental SCA has not taken a decision to join the Task Force on Climate- Protection Agency and the International Energy Agency’s fac- related Financial Disclosures (TCFD) initiative. Reporting by the tors. The climate impact is stated in the Annual Report as CO2 company partly covers TCFD’s recommendations, see the TCFD and refers to CO2e unless otherwise specified. The company’s section under Fossil-free world on page 150. climate benefit were quantified on the basis of the model pub- SCA ANNUAL AND SUSTAINABILITY REPORT 2020 lished by SCA in 2019 and presented on sca.com. The sustainability report also contains information about how SCA works with the UN Global Compact’s Ten Principles in the Emissions from transportation are calculated based on total areas of human rights, working conditions, the environment and transport performed per mode of transport for delivered prod- anti-corruption. ucts, raw materials and input goods. Emissions are calculated by multiplying transportation per transport mode (expressed as Boundary of the report tonne kilometers) by typical emission factors for the different The Sustainability Report covers the SCA Group, including modes of transportation. The emission factors used are based wholly owned subsidiaries and subsidiaries in which SCA owns on data from the Network for Transportation Measures (NTM) at least 50% of the company, see Note F1 under Financial notes. (www.transportmeasures.org). For transportation with SCA’s If SCA owns 50% or more of a company, the entire company is RoRo vessels and container-feeders, the actual fuel consump- included in the report. Divested and acquired operations are tion and load utilization is used. included for the part of the year the operations were owned by the company. Environmental data and resource use is stipulated Personnel-related data is mainly provided by SCA’s HR system. for the manufacturing units, meaning for pulp and paper mills Supporting qualitative data is gathered in SCA’s database for and for sawmills, building materials and pellets manufacturing. sustainability data. The IA system is used for reporting and fol- Social data is stipulated for the entire Group and pertains to own lowing-up work-related injuries and incidents at every unit within employees unless otherwise stated. the Group. Reporting also encompasses contractors who con- duct work on SCA’s sites. The system is also used for preventive As the report is prepared in accordance with the GRI Standards, reporting of risk observations. A new system has been devel- the materiality principle has had great significance. This means oped by SCA to report observations of safe and unsafe behavior, that the report’s content is determined by the issues that are BBS, as an aid to develop a health and safety culture in the com- most relevant to SCA and its stakeholders, and that the content pany. The statistics are aggregated to Group level. provides a complete view of the operations. The choice of GRI disclosure numbers is based on the materiality analysis con- When adjustments have been made compared with earlier years, ducted, see the Materiality analysis section. a note is made directly beside the chart or table.
162 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Signatures Signatures
The Board’s assessment is that the dividend to shareholders in the the International Financial Reporting Standards adopted by the EU proposed amount, in accordance with Note PC13, see page 134, is and that disclosures herein give a true and fair view of the Group’s justifiable taking into account the requirements, on both the company financial position and results of operations. The Parent Company’s and the Group, the nature of the business, its scope and risks place on financial statements have been prepared in accordance with generally the size of equity and also considering consolidation requirements, accepted accounting principles in Sweden and give a true and fair liquidity and other status. The financial position remains strong after view of the Parent Company’s financial position and results of opera- the proposed dividend and is considered sufficient to ensure that the tions. The statutory Board of Directors’ Report provides a fair review company can fulfill its short or long-term obligations, and has the of the Parent Company’s and Group’s operations, financial position opportunity to make any necessary investments. and results of operations and describes material risks and uncertain- ties facing the Parent Company and the companies included in the The Annual and Sustainability Report and the consolidated financial Group. statements have been approved for publication by the Board of Directors on March 11, 2021. The Group’s income statement and balance sheet The Annual Report also contains the Group’s and Parent Company’s and the Parent Company’s income statement and balance sheet will be sustainability reporting in accordance with the Swedish Annual presented for approval at the Annual General Meeting on April 15, 2021. Accounts Act, Chapter 6, Section 11, see page 65, and the Sustain- ability Report in accordance with the Global Reporting Initiative, GRI, The Board of Directors and President and CEO declare that the con- see the GRI index on pages 168–169. solidated financial statements have been prepared in accordance with SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
Sundsvall, March 11, 2021
Pär Boman Per Andersson Charlotte Bengtsson Roger Boström Chairman of the Board Acting Board member, Board member Board member, appointed by the employees appointed by the employees
Lennart Evrell Annemarie Gardshol Martin Lindqvist Bert Nordberg Board member Board member Board member Board member
Anders Sundström Barbara Milian Thoralfsson Johanna Viklund Lindén Board member Board member Board member, appointed by the employees
Ulf Larsson President and CEO, and Board member
Our audit report was submitted on March 11, 2021 Ernst & Young AB
Fredrik Norrman Authorized Public Accountant Auditor in charge
163 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Auditor’s report Auditor’s report
To the general meeting of the shareholders of Svenska Cellulosa Aktiebolaget SCA (publ), corporate identity number 556012-6293.
Report on the annual accounts and consolidated accounts
Opinions 2020 and their financial performance and Basis for Opinions We have audited the annual accounts and con- cash flow for the year then ended in accor- We conducted our audit in accordance with solidated accounts of Svenska Cellulosa Aktie- dance with International Financial Reporting International Standards on Auditing (ISA) and bolaget SCA (publ) for the year 2020 except for Standards (IFRS), as adopted by the EU, and generally accepted auditing standards in the corporate governance statement on pages the Annual Accounts Act. Our opinions do not Sweden. Our responsibilities under those 71–81 and the sustainability report defined on cover the corporate governance statement on standards are further described in the Audi- page 65. The annual accounts and consolidated pages 71–81 and the sustainability report on tor’s Responsibilities section. We are indepen- accounts of the company are included on pages page 65. The statutory administration report dent of the parent company and the Group in 71–134 and page 163 in this document. is consistent with the other parts of the accordance with professional ethics for annual accounts and consolidated accounts. accountants in Sweden and have otherwise In our opinion, the annual accounts have fulfilled our ethical responsibilities in accor- been prepared in accordance with the Annual We therefore recommend that the general dance with these requirements. This includes Accounts Act and present fairly, in all material meeting of shareholders adopts the income that, based on the best of our knowledge and respects, the financial position of the parent statement and balance sheet for the parent belief, no prohibited services referred to in the company as of December 31, 2020 and its company and the Group. Audit Regulation (537/2014) Article 5.1 have financial performance and cash flow for the been provided to the audited company or, year then ended in accordance with the Our opinions in this report on the annual where applicable, its parent company or its Annual Accounts Act. The consolidated accounts and consolidated accounts are con- controlled companies within the EU. accounts have been prepared in accordance sistent with the content of the additional with the Annual Accounts Act and present report that has been submitted to the parent We believe that the audit evidence we have fairly, in all material respects, the financial company’s audit committee in accordance obtained is sufficient and appropriate to position of the Group as of December 31, with the Audit Regulation (537/2014) Article 11. provide a basis for our opinions.
Key Audit Matters not provide a separate opinion on these mat- matters. Accordingly, our audit included the Key audit matters of the audit are those mat- ters. For each matter below, our description of performance of procedures designed to ters that, in our professional judgment, were of how our audit addressed the matter is pro- respond to our assessment of the risks of most significance in our audit of the annual vided in that context. material misstatement of the financial state- accounts and consolidated accounts of the ments. The results of our audit procedures, current period. These matters were addressed We have fulfilled the responsibilities including the procedures performed to in the context of our audit of, and in forming described in the Auditor’s responsibilities for address the matters below, provide the basis our opinion thereon, the annual accounts and the audit of the financial statements section for our audit opinion on the accompanying consolidated accounts as a whole, but we do of our report, including in relation to these financial statement. SCA ANNUAL AND SUSTAINABILITY REPORT 2020
Forest valuation
Description How our audit addressed this key audit matter
The Group’s forest assets are divided into standing timber recognized as bio- In our audit we have evaluated and reviewed the company’s process for valu- logical assets according to IAS 41 Agriculture, and land assets recognized in ation of forest assets at aggregated level and allocation of the value between accordance with IAS 16 Property, Plant and Equipment. biological assets and land assets. We have reviewed the reliability of the In order to better reflect the market value of the Group’s forest assets, effec- market data, key assumptions, discount rate (“WACC”) and other source data tive 2019-12-31, SCA elected to account for the Group’s forest assets at used by the company by i.e. comparing to external data sources, such as market value based on transactions in the areas where SCA owns forest land. market transactions, expected inflation, forest prices, felling costs, assess- The change means first that the accounting principle for forest land was ment of future felling volumes and by evaluating the sensitivity in the compa- changed to the revaluation method, i.e. that the forest land is recognized at ny’s valuation model. We have included valuation specialists in the team per- fair value where changes in value are reported as other comprehensive forming our review. We have specifically focused on the sensitivity in the income and, secondly, that the assumptions when valuating standing forest calculations and assessed the company’s historical capability to forecast. have changed. A description of the valuation of forest assets and important Finally we have assessed whether information provided in Note D3 (“Forest assumptions are presented in Note D3. assets”) is appropriate, in particular as regards to the information on which As of December 31, 2020, the forest (biological assets) has been disclosed at the assumptions given are most sensitive in the calculation of fair value and a value of SEK 51,3 billion and land assets at a value of SEK 23,6 billion. As of disclosures resulting from the change of accounting principle and changes in December 31, 2019, biological assets were disclosed at SEK 49,5 billion and assumptions. land assets at SEK 20,2 billion. The valuation process is complex as it requires assessments both in terms of market statistics and the breakdown of the total value of land and biological assets. Significant assessment areas include the scope and completeness of market statistics, area prices, discount rates, wood prices and felling costs. The valuation is classified as a Level 3 valuation in accordance with IFRS 13. Based on the above, we consider that the valuation of the Group’s forest assets to be a Key Audit Matter.
164 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Auditor’s report
Restructuring of Ortviken
Description How our audit addressed this key audit matter
On September 11, 2020, the Group announced the discontinuance of the pro- During our audit we have assessed the Group’s process to prepare impair- duction of publication paper at the Ortviken plant including associated func- ment calculations and restructuring provisions. We have audited the compli- tions within the Group. In accordance with the requirements of IAS 16, 36 and ance with relevant standards in IFRS and the obligations of the restructuring. 38 SCA recorded an impairment charge of SEK 920 million for assets which Our procedures included auditing the key assumptions used in assessing the value was assessed will not be recoverable over the reassessed useful life. In recoverable value of the assets affected by the restructuring with focus on addition, in accordance with IAS 19 and 37 the Group recorded a restruc- the assumptions to which the recoverable value is most sensitive to changes turing provision of SEK 756 million whereof SEK 756 million SEK remained at in. This has included evaluating management’s estimate of the future earn- December 31, 2020 to cover future committed costs. The impairment is ings of the remaining business and the usage of the assets based on the plan described in Note D1 and D2 and the restructuring provision including signifi- for restructuring as well as examination of underlying calculations. We have cant assumptions in Note D8. also audited the assumptions used to determine the provisions for future cost The amounts recorded are significant to the financial statements of the for the redundancy of personnel and the decommissioning of production Group as whole and non-recurring. It is complex and requires judgment to sites due to the restructuring. Future costs have been compared primarily determine the recoverable value of the assets as well as the estimate of future with agreed obligations and in the absence of an agreement, we have evalu- costs to be provided for in the restructuring provision. With respect to above ated management’s estimate of costs by comparing against similar obliga- we have determined that the restructuring is a key audit matter in our audit. tions where the outcome is known as well as reviewing the underlying calcu- lations. In addition, we have agreed the recorded amounts to supporting evidence. Finally, we have also assessed the appropriateness of the disclo- sures made in Notes D1 and D2 related to the impairment and Note D8 related to the restructuring provision.
Other Information than the annual Managing Director are responsible for the • Obtain an understanding of the company’s accounts and consolidated accounts assessment of the company’s and the Group’s internal control relevant to our audit in order SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA This document also contains other informa- ability to continue as a going concern. They dis- to design audit procedures that are appro- tion than the annual accounts and consoli- close, as applicable, matters related to going priate in the circumstances, but not for the dated accounts and is found on pages 1–59, concern and using the going concern basis of purpose of expressing an opinion on the 135–162 and 168–176. The remuneration accounting. The going concern basis of effectiveness of the company’s internal report for the financial year 2020 also consti- accounting is however not applied if the Board control. tutes other information. It is the Board of of Directors and the Managing Director intends • Evaluate the appropriateness of accounting Directors and the CEO who are responsible to liquidate the company, to cease operations, policies used and the reasonableness of for this other information. or has no realistic alternative but to do so. accounting estimates and related disclo- sures made by the Board of Directors and Our opinion on the annual accounts and con- The Audit Committee shall, without prejudice to the Managing Director. solidated accounts does not cover this other the Board of Director’s responsibilities and • Conclude on the appropriateness of the information and we do not express any form tasks in general, among other things oversee Board of Directors’ and the Managing Direc- of assurance conclusion regarding this other the company’s financial reporting process. tor’s use of the going concern basis of information. accounting in preparing the annual accounts Auditor’s responsibility and consolidated accounts. We also draw a In connection with our audit of the annual Our objectives are to obtain reasonable assur- conclusion, based on the audit evidence accounts and consolidated accounts, our ance about whether the annual accounts and obtained, as to whether any material uncer- responsibility is to read the information identi- consolidated accounts as a whole are free tainty exists related to events or conditions fied above and consider whether the informa- from material misstatement, whether due to that may cast significant doubt on the com- tion is materially inconsistent with the annual fraud or error, and to issue an auditor’s report pany’s and the Group’s ability to continue as accounts and consolidated accounts. In this that includes our opinions. Reasonable assur- a going concern. If we conclude that a mate- procedure we also take into account our ance is a high level of assurance, but is not a rial uncertainty exists, we are required to knowledge otherwise obtained in the audit guarantee that an audit conducted in accor- draw attention in our auditor’s report to the and assess whether the information other- dance with ISAs and generally accepted related disclosures in the annual accounts wise appears to be materially misstated. auditing standards in Sweden will always and consolidated accounts or, if such dis- detect a material misstatement when it exists. closures are inadequate, to modify our If we, based on the work performed con- Misstatements can arise from fraud or error opinion about the annual accounts and con- cerning this information, conclude that there and are considered material if, individually or solidated accounts. Our conclusions are is a material misstatement of this other infor- in the aggregate, they could reasonably be based on the audit evidence obtained up to mation, we are required to report that fact. expected to influence the economic decisions the date of our auditor’s report. However, We have nothing to report in this regard. of users taken on the basis of these annual future events or conditions may cause a accounts and consolidated accounts. company and a Group to cease to continue Responsibilities of the Board of as a going concern. Directors and the Managing Director As part of an audit in accordance with ISAs, we • Evaluate the overall presentation, structure The Board of Directors and the Managing exercise professional judgment and maintain and content of the annual accounts and Director are responsible for the preparation of professional skepticism throughout the audit. consolidated accounts, including the dis- the annual accounts and consolidated We also: closures, and whether the annual accounts accounts and that they give a fair presentation • Identify and assess the risks of material and consolidated accounts represent the in accordance with the Annual Accounts Act misstatement of the annual accounts and underlying transactions and events in a and, concerning the consolidated accounts, in consolidated accounts, whether due to manner that achieves fair presentation. accordance with IFRS as adopted by the EU. fraud or error, design and perform audit • Obtain sufficient and appropriate audit evi- The Board of Directors and the Managing procedures responsive to those risks, and dence regarding the financial information of Director are also responsible for such internal obtain audit evidence that is sufficient and the entities or business activities within the control as they determine is necessary to appropriate to provide a basis for our opin- Group to express an opinion on the consoli- enable the preparation of annual accounts and ions. The risk of not detecting a material dated accounts. We are responsible for the consolidated accounts that are free from mate- misstatement resulting from fraud is higher direction, supervision and performance of rial misstatement, whether due to fraud or error. than for one resulting from error, as fraud the Group audit. We remain solely respon- may involve collusion, forgery, intentional sible for our opinions. In preparing the annual accounts and consoli- omissions, misrepresentations, or the over- dated accounts, The Board of Directors and the ride of internal control.
165 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Auditor’s report
We must inform the Board of Directors of, relevant ethical requirements regarding inde- From the matters communicated with the among other matters, the planned scope and pendence, and to communicate with them all Board of Directors, we determine those matters timing of the audit. We must also inform of relationships and other matters that may rea- that were of most significance in the audit of the significant audit findings during our audit, sonably be thought to bear on our indepen- annual accounts and consolidated accounts, including any significant deficiencies in internal dence, and, where applicable, measures taken including the most important assessed risks for control that we identified. to eliminate the threats or countermeasures material misstatement, and are therefore the that have been taken. key audit matters. We describe these matters in We must also provide the Board of Directors the auditor’s report unless law or regulation with a statement that we have complied with precludes disclosure about the matter.
Report on other legal and regulatory requirements
Opinions Auditor’s responsibility pages 71–81 has been prepared in accor- In addition to our audit of the annual accounts Our objective concerning the audit of the dance with the Annual Accounts Act. and consolidated accounts, we have also administration, and thereby our opinion about Our examination of the corporate governance audited the administration of the Board of discharge from liability, is to obtain audit evi- statement is conducted in accordance with Directors and the Managing Director of dence to assess with a reasonable degree of FAR´s auditing standard RevR 16 The audi- Svenska Cellulosa Aktiebolaget SCA (publ) assurance whether any member of the Board tor´s examination of the corporate gover- for the year 2020 and the proposed appropri- of Directors or the Managing Director in any nance statement. This means that our exam- ations of the company’s profit or loss. material respect: ination of the corporate governance • has undertaken any action or been guilty of We recommend to the general meeting of statement is different and substantially less any omission which can give rise to liability shareholders that the profit be appropriated in scope than an audit conducted in accor- to the company, or in accordance with the proposal in the statu- dance with International Standards on • in any other way has acted in contravention tory administration report and that the mem- Auditing and generally accepted auditing of the Companies Act, the Annual Accounts bers of the Board of Directors and the Man- standards in Sweden. We believe that the Act or the Articles of Association. aging Director be discharged from liability for examination has provided us with sufficient the financial year. Our objective concerning the audit of the pro- basis for our opinions. posed appropriations of the company’s profit A corporate governance statement has been Basis for opinions or loss, and thereby our opinion about this, is prepared. Disclosures in accordance with We conducted the audit in accordance with to assess with reasonable degree of assur- chapter 6 section 6 the second paragraph generally accepted auditing standards in ance whether the proposal is in accordance points 2–6 of the Annual Accounts Act and Sweden. Our responsibilities under those with the Companies Act. chapter 7 section 31 the second paragraph standards are further described in the Audi- Reasonable assurance is a high level of assur- the same law are consistent with the other tor’s Responsibilities section. We are inde- ance, but is not a guarantee that an audit con- parts of the annual accounts and consoli- pendent of the parent company and the ducted in accordance with generally accepted dated accounts and are in accordance with Group in accordance with professional ethics auditing standards in Sweden will always detect the Annual Accounts Act. for accountants in Sweden and have other- actions or omissions that can give rise to liability wise fulfilled our ethical responsibilities in to the company, or that the proposed appropria- The auditor´s opinion regarding the accordance with these requirements. tions of the company’s profit or loss are not in statutory sustainability report We believe that the audit evidence we have accordance with the Companies Act. The Board of Directors is responsible for the obtained is sufficient and appropriate to pro- statutory sustainability report on page 65 As part of an audit in accordance with gener- vide a basis for our opinions. with references, and that it is prepared in ally accepted auditing standards in Sweden, accordance with the Annual Accounts Act. SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Responsibilities of the Board of we exercise professional judgment and main- Directors and the Managing Director tain professional skepticism throughout the Our examination has been conducted in audit. The examination of the administration accordance with FAR’s auditing standard The Board of Directors is responsible for the and the proposed appropriations of the com- RevR 12 The auditor´s opinion regarding the proposal for appropriations of the company’s pany’s profit or loss is based primarily on the statutory sustainability report. This means profit or loss. At the proposal of a dividend, audit of the accounts. Additional audit proce- that our examination of the statutory sustain- this includes an assessment of whether the dures performed are based on our profes- ability report is different and substantially dividend is justifiable considering the require- sional judgment with starting point in risk and less in scope than an audit conducted in ments which the company’s and the Group’s materiality. This means that we focus the accordance with International Standards on type of operations, size and risks place on the examination on such actions, areas and rela- Auditing and generally accepted auditing size of the parent company’s and the Group’s tionships that are material for the operations standards in Sweden. We believe that the equity, consolidation requirements, liquidity and where deviations and violations would examination has provided us with sufficient and position in general. have particular importance for the company’s basis for our opinion. The Board of Directors is responsible for the situation. We examine and test decisions A statutory sustainability report has been company’s organization and the administration undertaken, support for decisions, actions prepared. of the company’s affairs. This includes among taken and other circumstances that are rele- other things continuous assessment of the vant to our opinion concerning discharge from Ernst & Young AB, with Fredrik Norrman as company’s and the Group’s financial situation liability. As a basis for our opinion on the Board auditor-in-charge, was appointed auditor of and ensuring that the company’s organization is of Directors’ proposed appropriations of the Svenska Cellulosa Aktiebolaget AB by the designed so that the accounting, management company’s profit or loss we examined the general meeting of the shareholders on of assets and the company’s financial affairs Board of Directors’ reasoned statement and a March 31, 2020 and has been the company’s otherwise are controlled in a reassuring manner. selection of supporting evidence in order to be auditor since 2016. The Managing Director shall manage the able to assess whether the proposal is in ongoing administration according to the Board accordance with the Companies Act. Stockholm March 11, 2021 of Directors’ guidelines and instructions and among other matters take measures that are The auditor’s examination of the Ernst & Young AB necessary to fulfill the company’s accounting in corporate governance statement accordance with law and handle the manage- The Board of Directors is responsible for that Fredrik Norrman ment of assets in a reassuring manner. the corporate governance statement on Authorized Public Accountant
166 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Limited Assurance Report on the Sustainability Report Auditor’s Limited Assurance Report
This is the translation of the auditor’s report in Swedish.
Auditor’s Limited Assurance Report on Svenska Cellulosa Aktiebolaget SCA’s Sustainability Report
To Svenska Cellulosa Aktiebolaget SCA, corporate, identity number 556012-6293
Introduction a limited assurance engagement vary in nature from, and are less in We have been engaged by the Board of Directors of Svenska Cellulosa scope than for, a reasonable assurance engagement conducted in Aktiebolaget SCA to undertake a limited assurance engagement of accordance with IAASB’s Standards on Auditing and other generally 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Svenska Cellulosa Aktiebolaget SCA’s Sustainability Report for the accepted auditing standards. year 2020. The company has defined the scope of the Sustainability Report to the areas referred to in the GRI Index on pages 168–169. The firm applies ISQC 1 (International Standard on Quality Control) and accordingly maintains a comprehensive system of quality control Responsibilities of the Board of Directors and the including documented policies and procedures regarding compliance Executive Management for the Sustainability Report with ethical requirements, professional standards and applicable legal The Board of Directors and the Executive Management are respon- and regulatory requirements. We are independent of Svenska sible for the preparation of the Sustainability Report in accordance Cellulosa Aktiebolaget SCA in accordance with professional ethics with the applicable criteria, as explained on the page 162, and are the for accountants in Sweden and have otherwise fulfilled our ethical parts of the Sustainability Reporting Guidelines published by GRI responsibilities in accordance with these requirements. (Global Reporting Initiative) that are applicable to the Sustainability Report, as well as the accounting and calculation principles that the The procedures performed, consequently, do not enable us to obtain Company has developed. This responsibility also includes the internal assurance that we would become aware of all significant matters control relevant to the preparation of a Sustainability Report that is that might be identified in a reasonable assurance engagement. free from material misstatements, whether due to fraud or error. Accordingly, we do not express a reasonable assurance conclusion.
Responsibilities of the Auditor Our procedures are based on the criteria defined by the Board of Our responsibility is to express a conclusion on the Sustainability Directors and the Executive Management as described above. We Report based on the limited assurance procedures we have per- consider these criteria suitable for the preparation of the Sustainability formed. Our review is limited to the information in this document and Report. We believe that the evidence we have obtained is sufficient to the historical information and does therefore not include future and appropriate to provide a basis for our conclusion below. oriented information. Conclusion We conducted our limited assurance engagement in accordance with Based on the limited assurance procedures we have performed, ISAE 3000 Assurance engagements other than audits or reviews of nothing has come to our attention that causes us to believe that the historical financial information. A limited assurance engagement Sustainability Report is not prepared, in all material respects, in consists of making inquiries, primarily of persons responsible for the accordance with the criteria defined by the Board of Directors and preparation of the Sustainability Report, and applying analytical and Executive Management. other limited assurance procedures. The procedures performed in
Stockholm, March 11, 2021
Ernst & Young AB
Fredrik Norrman Charlotte Söderlund Authorized Public Accountant Authorized Public Accountant
167 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
GRI Index GRI Index
SCA prepares its report in accordance with GRI Standards, Core option. All indicators are from 2016 except GRI 403-9 which refers to 2018.
GRI 102: General disclosures Disclosure number Description Page Comment/Omission Organizational profile 102-1 Name of the organization 176 102-2 Activities, brands, products and services 3, sca.com 102-3 Location of headquarters 176 102-4 Location of operations 96 102-5 Ownership and legal form 58–59 102-6 Markets served 10 –11, 96 102-7 Scale of the organization 5, 94–96 (Note B1) 102-8 Information on employees and other workers 96, 159, 162 Apart from SCA’s own employees, the main group that is not employed by SCA com- prises contractors conducting forest ser- vices, some 900 people. 102-9 Supply chain 146 102-10 Significant changes to the organization and its supply chain 5, 61–62 102-11 Precautionary Principle or approach 153 102-12 External initiatives 141 102-13 Membership of associations 141 Strategy 102-14 Statement from senior decision-maker 6–7 Ethics and integrity 102-16 Values, principles, standards and norms of behavior 144–146 Governance 102-18 Governance structure 71–72, 141 Stakeholder engagement 102-40 List of stakeholder groups 143 102-41 Collective bargaining agreements 157 102-42 Identifying and selecting stakeholders 142–143 102-43 Approach to stakeholder engagement 142–143
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 102-44 Key topics and concerns raised 142–143 Reporting practice 102-45 Entities included in the consolidated financial statements 122 (Note F1), 162 102-46 Defining report content and topic boundaries 162 102-47 List of material topics 142 102-48 Restatements of information 162 102-49 Changes in reporting 61–62 102-50 Reporting period 162 102-51 Date of most recent report 162 102-52 Reporting cycle 162 102-53 Contact point for questions regarding the report 176 102-54 Claims of reporting in accordance with the GRI Standards 162 102-55 GRI index 168–169 102-56 External assurance 163, 167
168 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
GRI Index
GRI 103: Management approach 103-1: Explanation of the 103-2: The manage- GRI 103-3 Evaluation material topic and its ment approach and of the management Area Disclosure number boundary, page its components, page approach Economic performance GRI 201: Economic performance 201-1 142, 162 138–139, 141 141 Anti-corruption GRI 206: Anti-competitive behavior 206-1 142, 162 138–139, 141 141 Energy GRI 302: Energy 302-1 142, 154, 162 138–139, 141 141 Biodiversity GRI 304: Biodiversity 304-3 142, 152, 162 138–139, 141 141 Emissions
GRI 305: Emissions 305-5 142, 162 138–139, 141 141 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Occupational health and safety GRI 403: Occupational health and safety 403-9 142, 162 138–139, 141, 156–157 141 Diversity and equal opportunity GRI 405: Diversity and equal opportunity 405-1 142, 162 138–139, 141 141
GRI 403: Occupational health and safety 403-7: 403-4: Prevention and mitiga- 403-1: 403-2: Worker participa- 403-5: tion of occupational Occupational Hazard identifica- 403-3: tion, consultation, Worker training health and safety health and safety tion, risk assess- Occupa- and communication on occupa- 403-6: impacts directly linked management ment, and incident tional health on occupational tional health Promotion of by business relation- system investigation services health and safety and safety worker health ships Occupational health and safety 403-9 156 141, 145, 156 143, 156–157, 162 156 156–158 146, 153 156–157, 162
Material sustainability topics Area Disclosure Description Page Comment/Omission number Economic performance GRI 201: Economic performance 201-1 Direct economic value gener- 136, 147 ated and distributed Anti-corruption GRI 206: Anti-competitive behavior 206-1 Legal actions for anti-competi- 144–145 tive behavior, anti-trust, and monopoly practices Energy GRI 302: Energy 302-1 Energy consumption within the 154, 160–161 organization Biodiversity GRI 304: Biodiversity 304-3 Habitats protected or restored 151–152 Emissions GRI 305: Emissions 305-5 Reduction of GHG emissions 148–149, 160–161 Occupational health and safety GRI 403: Occupational health and safety 403-9 Work-related injuries 145, 156–157, 159, 162 For contractors who performed work at SCA’s facilities, in forestry opera- tions or conducted transport activi- ties, reporting is only used for CLTA and fatal accidents. Diversity and equal opportunity GRI 405: Diversity and equal opportunity 405-1 Diversity of governance bodies 80–81, 96, 157–159 Departure for information on minority and employees groups in accordance with Swedish law.
169 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Multi-year summary Financial multi-year summary
SEKm 2020 2019 2018 2017 20161) 20151) 20141) INCOME STATEMENT Net sales 18,410 19,591 18,755 16,664 15,373 16,152 15,412 EBITDA 4,4402) 5,3193) 5,252 3,648 3,385 3,781 3,300 Forest 2,213 1,740 1,394 1,363 1,238 1,213 1,240 Wood 657 789 904 670 531 484 607 Pulp 614 983 709 482 530 970 768 Paper 1,190 2,064 2,468 1,479 1,246 1,317 855 Other –2342) –2573) –223 –346 –160 –203 –170 Depreciation –1,6012) –1,6163) –1,250 –1,137 –1,114 –2,517 –1,218 Operating profit 2,8392) 3,7033) 4,002 2,511 2,271 1,264 2,082 Financial items –117 –126 –29 –93 –84 –128 –221 Profit before tax 2,7222) 3,5773) 3,973 2,418 2,187 1,136 1,861 Taxes –4832) –7303) –314 –544 –417 –262 –482 Profit for the period 2,2392) 2,8473) 3,659 1,874 1,770 874 1,379
BALANCE SHEET Forest assets 74,900 69,682 33,065 32,384 31,765 31,113 30,679 Deferred tax liabilities related to forest assets –14,977 –13,977 –6,658 –6,905 –6,769 –6,626 –6,531 Working capital 2,759 3,748 3,735 2,861 2,740 3,002 3,118 Other capital employed 17,152 17,654 15,940 14,379 12,390 10,347 11,562 Capital employed 79,834 77,107 46,082 42,719 40,127 37,836 38,828
Equity 72,163 68,510 39,062 36,753 35,1274) - - Net debt 7,671 8,597 7,020 5,966 5,0004) - - Capital employed 79,834 77,107 46,082 42,719 40,127 37,836 38,828
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 CASH FLOW STATEMENT Operating cash flow 2,688 2,922 2,751 2,273 1,917 2,481 1,469 Cash flow before dividend 723 145 528 –754 –350 1,673 1,050 Current capital expenditures, net –1,2245) –1,132 –1,002 –638 –959 –869 –876 Strategic capital expenditures in non-current assets –1,414 –1,256 –1,967 –2,863 –2,231 –946 –184
KEY FIGURES EBITDA margin 24.1%2) 27.2%3) 28.0% 21.9% 22.0% 23.4% 21.4% Operating margin 15.4%2) 18.9%3) 21.3% 15.1% 14.8% 7.8% 13.5% Industrial return on capital employed 5.4%2) 11.9% 20.1% 12.5% 10.5% 2.2% 8.1% Return on capital employed 3.6%2) 6.9%3) 9.0% 6.1% 5.8% 3.3% 5.4% Working capital as a percentage of sales 18.3% 20.2% 17.5% 17.7% 17.8% 18.6% 20.2% Net debt/EBITDA 1.7x2) 1.6x3) 1.3x 1.6x 1.5x4) - - Net debt/Equity 11% 13% 18% 16% 14%4) 0% 0% Data per share Earnings per share, SEK 3.192) 4.053) 5.21 2.67 2.52 1.24 1.96 Dividend per share, SEK 2.006) 0.00 1.75 1.50 - - - Operating cash flow per share, SEK 3.83 4.16 3.92 3.24 2.73 3.53 2.09 1) Restated financial information. 2) Excluding the effect of one-off items related to the discontinuation of publication paper operations. 3) Excluding the impact of the changed accounting method for the valuation of forest assets. 4) Pro forma. Pro forma net debt after reallocation to SEK 5,000m on December 31, 2016. Pro forma equity calculated as capital employed less pro forma net debt. Pro forma value of net debt and equity used in relation to EBITDA (not pro forma). 5) SEK 81m from new, remeasured and terminated leases. 6) Board of Directors’ proposal.
170 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Multi-year summary Non-financial multi-year summary
2020 2019 2018 2017 Employees trained in SCA’s Code of Conduct 96% 96% 90% 90% Percentage of contract suppliers that have approved SCA’s Supplier Standard 94% 93% 94% 75%
Values Number of confirmed breaches of SCA’s Code of Conduct 7 8 2 -
Total shareholder return (TSR) 51% 41% –17% - Credit rating Investment Investment Investment Investment
growth grade grade grade grade Profitable Profitable
Climate benefit1), million tonnes of CO2e 9.6 10.5 8.0 - SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA Uptake of CO2 through net growth of SCA’s forests, million tonnes CO2 4.4 5.4 4.0 4.0
Fossil emissions in the value chain (Scope 1–2–3), million tonnes of CO2e 0.86 0.91 0.88 - Specific fossil emissions (Scope 1–2 excluding transportation), kg CO2e per tonnes of product 69.6 79.5 72.2 - Fossil-free production (emissions from used fuel and electricity) 95% 95% 93% 95%
Fossil emissions from transportation in the value chain, million tonnes of CO2e 0.39 0.41 0.35 0.37 Fossil-free world Fossil-free Specific fossil emissions from transportation in the value chain, g of CO2e per tonne-kms transport performed 19.0 17.9 19.3 21.2 Installed capacity of wind power on SCA’s land, TWh per year 5.4 4.4 2.6 2.3
Standing volume in SCA’s forests2), million m3fo 257 252 245 232 Wood raw material from responsibly managed forests, percentage of chain of custody certified wood raw material3) 100% 100% 100% 100% Wood raw material from responsibly managed forests, percentage of wood raw material from certified forestry or harvested with SCA retention4) 81% 67% 71% 71% Replanting, millions of seedlings planted in SCA’s forests 46 35 36 32 Valuable forests Valuable Nature conservation area5), % of productive forest land 22.5% 21.0% 20.0% 24.0% Number of consultation meetings with reindeer-herding Sami communities 120 79 69 65
Wood raw material used, million m3sub 11.3 11.2 9.6 9.6 Electricity used, TWh 2.77 3.08 2.96 3.04
Emissions to air of nitrogen compounds, tonnes of NO2 2,106 1,995 1,831 1,696
resources Emissions to water of suspended solids, tonnes 2,628 1,873 1,892 2,786
Efficient use of Efficient Waste sent to landfill or classified as hazardous waste, tonnes 7,704 6,825 7,303 8,827
Average number of employees 4,196 4,253 4,216 4,127
Share of women in the Group 21% 19% 19% 18% Sickness absence, short and long-term 3.9% 3.1% 3.5% 3.8% Workplace accident Frequency Rate, LTA per million hours worked 5.6 7.4 9.1 10.4 community
Responsibility Preventive activities – Risk and behavior-based safety observations, number of observations 18,079 13,964 11,290 8,500 for people and the Share of payments to northern Sweden 58% 51% - - 1) Climate benefit calculated using the model launched by SCA in 2019, see sca.com 2) New forest survey in 2019. Holding in the Baltic states included since 2019. 3) Wood raw material that at least complies with FSC’s Controlled Wood Standard. 4) SCA retention concerns harvesting where the on-site retention correspond to FSC’s requirements for certified forestry. 5) Nature conservation area refers to voluntary set-asides and on-site retention in harvesting operations.
171 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
Definitions and glossary Definitions and glossary
Financial terms Glossary Performance measures Industrial return on capital CTMP Chemi-thermomechanical pulp employed is a high-yield pulp produced through EBITDA The Group’s return on capital employed, heating and mechanical defibration in Profit before depreciation, amortization excluding operating profit and capital a refiner of preheated, chemically pre- and impairment, financial items and taxes. employed from the Forest operating seg- treated softwood. ment and a share of other activities. Stra- EBITDA margin tegic capital expenditures in industry that FSC (Forest Stewardship Council) is an Profit before depreciation, amortization have not begun operating and one-off international organization promoting and impairment, financial items and taxes items are excluded. This measure applies responsible forest management. The FSC as a percentage of net sales for the year. to all industrial segments. has developed principles for responsible forestry that can be applied for certifying forest management and that facilitate FSC Capital definitions Cash flow performance mea- labeling of wood products from FSC- sures certified forests. Capital employed The balance sheet’s total assets excluding Operating cash surplus Kraftliner is the surface layer of corru- financial assets and pension assets, less EBITDA with deductions for capital gains gated board based on fresh wood fiber. any trade payables and other current and capital losses from property, plant non-interest-bearing liabilities. and equipment and intangible assets and m3sub (solid cubic meter under bark) the reversal of the share of profits of asso- specifies the volume of timber excluding Working capital ciates and the result of the forest revalua- bark and tops. Used in harvesting and the Short-term operating receivables (inven- tion. timber trade. 1 m3sub equals about 1.22 tories, accounts receivable and other m3fo. non-interest-bearing current receivables) Operating cash flow less current operating liabilities (trade The sum of operating cash surplus and m3fo (forest cubic meter) specifies the payables and other non-interest-bearing change in working capital, with deduc- volume of timber including tops and bark, current liabilities). tions for current capital expenditure and but excluding branches. Used to describe restructuring costs. the forest portfolio of standing timber. Net debt Growth is also specified in forest cubic Financial liabilities and provisions for pen- Cash flow from current operations meters. 1 m3fo equals about 0.82 m3sub. sions with deductions for financial assets Operating cash flow less net financial (surplus in funded pension plans, financial items and tax payments and taking into PEFC (Programme for the Endorsement SCA ANNUAL AND SUSTAINABILITY REPORT 2020 assets and cash and cash equivalents). account other financial cash flow. of Forest Certification) is an international forest certification system. Strategic capital expenditures Profitability ratios in non-current assets Productive forest land is land with a Investments aimed at increasing the com- productive capacity that exceeds an Return on capital employed pany’s future cash flow through acquisi- average of one cubic meter of forest per Accumulated return on capital employed tions of companies, capital expenditures hectare annually. is calculated as 12-month rolling oper- to expand facilities, or new technologies ating profit as a percentage of average that boost competitiveness. NBSK is bleached softwood kraft pulp capital employed for the five most recent manufactured by boiling wood fiber with quarters. The corresponding key figure for Current capital expenditures, net chemicals. a single quarter is calculated as operating Investments made to maintain competi- profit for the quarter multiplied by four as tiveness, and include maintenance, ratio- Solid-wood products refers to wood a percentage of capital employed on nalization and replacement measures or sawn into various sizes for use in, for average for the two most recent quarters. investments of an environmental nature, example, furniture manufacturing, joinery One-off items are excluded. Industrial with deductions for compensation from or construction. segments only use industrial ROCE. divested non-current assets, aimed at preserving the value of assets. Wood raw material relates to fresh wood fiber used in solid-wood products, pulp and paper products.
172 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
About the Annual General Meeting About the Annual General Meeting
The Annual General Meeting of Svenska by submitting their postal vote, register Box 191, SE-101 23 Stockholm, Sweden, Cellulosa Aktiebolaget SCA will be held their shares under their own names so or by e-mail to GeneralMeetingService@ on April 15, 2021 by postal vote. This that the shareholders are listed in the euroclear.com. Shareholders who are nat- means the Annual General Meeting will be statement of the shareholders’ register ural persons may also submit postal votes held without the physical attendance of on April 7, 2021. Such registration may electronically through verification using shareholders, proxies or external parties be temporary and is made to the nominee the BankID security app via Euroclear and that shareholders can only exercise in accordance with the nominee’s pro Sweden AB’s website https://anmalan. their right to vote at the Annual General cedures in good time as decided by the vpc.se/EuroclearProxy/. Meeting by postal vote. Information about nominee. Voting rights registration sub- the resolutions passed at the Annual Gen- mitted by nominees no later than on If the shareholders submit a postal vote eral Meeting will be published on the Friday, April 9, 2021, will be taken into via a proxy, the form must include a power same day when the outcome of the postal account when preparing the share- of attorney. Proxy forms are available in vote has been finalized. holders’ register. Swedish and English upon request from 2020 REPORT SUSTAINABILITY AND ANNUAL SCA the company and are also available on the Registration and notification Postal voting company’s website www.sca.com. A power of attorney is valid for one year Shareholders who wish to attend the Shareholders may exercise their voting from its issue or the longer period of Annual General Meeting must be listed in rights at the Annual General Meeting by validity stipulated in the power of attorney, the shareholders’ register maintained by postal vote using a special form. The form though not more than five years. If a Euroclear Sweden AB as of April 7, 2021, is available on the company’s website shareholder is a legal entitiy, a registration and give notice by submitting their postal www.sca.com. The postal voting form is certificate or equivalent authorization vote so that the postal vote reaches Euro- valid as notification of participation in the documents, not older than one year, clear Sweden AB no later than on April 14, Annual General Meeting. listing the authorized signatories must be 2021. attached to the form. The completed and signed form is to In order to be entitled to participate in the be sent by mail to Svenska Cellulosa The Notice convening the Annual General Annual General Meeting, nominee share- Aktiebolaget SCA, “Annual General Meeting can be found on the company holders must, in addition to giving notice Meeting”, c/o Euroclear Sweden AB, website www.sca.com.
173 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
SCA’s performance SCA’s development
Wood fiber has always generated value and SCA has over time sought the best way to realize this value, which has resulted in changing end products. In 2020, SCA took a significant step towards a business structure which will create even greater value over time.
SCA chooses newsprint as a strategic develop- ment area. The sulfite pulp mill in Ortviken became a newsprint mill. Two newsprint machines were built in 1956–1957 with a total capacity of 160,000 tonnes. The first decision taken by the SCA Board was to invest in a new kraft pulp mill. The Östrand pulp mill was taken into operation in 1932 and was then, as it still is, the largest production line for bleached softwood kraft pulp in the world. 1958
1932 1961
The first kraftliner machine in Munksund SCA ANNUAL AND SUSTAINABILITY REPORT 2020 1950 began operating in 1961 and signaled the start of SCA’s packaging business. To ensure an outlet for liner, SCA entered the corrugated board market and acquired a number of facili- ties in Europe. 1929 SCA is listed on the stock exchange. When SCA was registered on the Stockholm Stock Exchange, it had approximately 17,000 share- holders. The share issue encompassed 375,000 shares at a price of SEK 130 per share. The SCA Group was established on November 27, 1929. Some ten independent forest com- panies joined together in a Group comprising forests, sawmills, pulp mills, workshops and power companies.
174 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
SCA’s performance
SCA resolves to discontinue its publication paper operations and invests in increased production of pulp and containerboard.
SCA sold its packaging business to DS Smith. SCA also sold its publication paper mills out- side of Sweden, Laakirchen and Aylesford. 2020 SCA ANNUAL AND SUSTAINABILITY REPORT 2020 REPORT SUSTAINABILITY AND ANNUAL SCA
2012
2017
1975 Following a historical decision at the Annual General Meeting, SCA was split into two listed companies – the forest products company SCA and the hygiene company Essity, both leaders in their respective industries. SCA takes a first step toward becoming a con- sumer goods company with the purchase of the Swedish hygiene company Mölnlycke. In the following years, SCA becomes Europe’s leading hygiene company.
175 Introduction Strategy and operations Board of Directors’ Report Financial statements and notes Sustainability facts Other
SCA ANNUAL AND SUSTAINABILITY REPORT 2020 Addresses
Headquarters Svenska Cellulosa Aktiebolaget SCA (publ) Corp. Reg. No.: 556012-6293 Telephone: +46 60 19 30 00 Postal address: SE-851 88 Sundsvall, Sweden E-mail: [email protected] Street address: Skepparplatsen 1 Website: www.sca.com
For details about contact persons, refer to sca.com
WAN E S CO Production: SCA in collaboration with Hallvarsson & Halvarsson and Bold IC L D A B R Translation: The Bugli Company E O L N Photos: Mattias Andersson, Torbjörn Bergkvist, Isak Berglund Mattsson-Mårn, Michael Engman, Dennis Ersöz, Sanna Grannas, Jonna Jinton, Ola Kårén, Per-Anders Sjöquist, Patrick Trädgårdh, Liv Åhlund, SCA’s historical image archives. PEFC/09-31-017 Printed matter 5041 0004 Illustrations: Fellow Designers, Saga-Mariah Sandberg and Nadja Nörbom.
Paper: Insert – GraphoSilk 100 g/m2 from SCA. Cover – Algro Advance 270 g/m2 SCA’s Annual Report is produced with the greatest possible environmental consideration. Our paper, GraphoSilk 100g/m2, is manufactured using raw material from responsibly managed forests in Northern Sweden at Ortviken paper mill, a mill with exceptionally low emissions of CO2 from fossil sources. Printing: Stibo Complete, Katrineholm, 2021
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Wood fiber – a few millimeters long, a fraction of a millimeter wide, if managed responsibly, will last forever and is the foundation for an industrial ecosystem.
sca.com